A Study of the India-Bhutan Energy Cooperation Agreements AND THE IMPLEMENTATION OF HYDROPOWER PROJECTS IN BHUTAN

Supported by

A Study of the India-Bhutan Energy Cooperation Agreements and the

Implementation of Hydropower Projects in Bhutan

Author: Lakshmi Premkumar

Research Support: Ileena Roy

Field Research and Bhutan Support: Dr. Lam Dorjee and Ms. Tshering Lhamtshok,

Centre for Environment and Development, Bhutan

Photo Credits: Vasudha Foundation

Vasudha Foundation New Delhi January 2016

A Study of the India-Bhutan Energy Cooperation Agreements AND THE IMPLEMENTATION OF HYDROPOWER PROJECTS IN BHUTAN

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Acknowledgements

First, I would like to acknowledge Oxfam India for not only providing us with resources for com-

ing up with the report, but for believing that this report would go a long way in unpacking the

myths and realities of infrastructure cooperation agreements between countries, either bi-lateral or

regional and act as a tool kit for policy makers on possible best practice solutions in regional and

bi-lateral co-operations that could benefi t communities.

Words alone cannot express my gratitude to Ms. Lakshmi Premkumar, the Lead Author of this report,

for authoring the report, and for her guidance on both the primary and secondary research

This report would not be possible without the extensive research undertaken by Ms. Ileena Roy,

which has added to the richness of information in the report.

Our special thanks to Ms. Niyati Naudiyal for the GIS aided imagery that she produced to enrich the

report.

Producing this report would not have been possible without the support by Dr. Lam Dorjee and

Ms. Tshering Lhamtshok from the Centre for Environment and Development, Bhutan. Words alone

cannot convey our gratitude to them for their rich inputs at various stages of designing the project,

providing access to their vast network of experts and importantly, enabling a very extensive fi eld

research and interaction with various appropriate stakeholders and residents around the hydro-

electric project areas developed or being developed in Bhutan under the India-Bhutan Energy

Cooperation Agreement.

My special thanks to Ms. Pooja Parvati, Ms. Alpaxee Kashyap and Mr. Oommen Kurian of Oxfam

India, who spent considerable time in giving their inputs and suggestions and to Ms. Supriya Roy

Choudhary, formerly with Oxfam, who was instrumental in shaping the initial design of the project.

We would like to acknowledge and thank all the various Government Offi cials of the Royal King-

dom of Bhutan, offi cials of the various Hydro-Electric Projects and residents from the Hydro-Electric

Project areas, whom we interacted with for their rich inputs and sharing their perspectives, without

which, this report would not have been possible.

Last but not the least, many thanks to our research and policy colleagues at Vasudha Foundation,

Ms. Bhavya Sharma and Ms. Samiksha Dhingra for assisting Ileena with desk research and to the

entire fi nance and administration team of Vasudha Foundation for providing the much needed

logistics support.

Srinivas Krishnaswamy New Delhi

CEO, Vasudha Foundation December 2015

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Contents

List of Tables vi

List of Figures vi

List of Acronyms vii

Executive Summary ix

1. SECTION ONE 1

1.1. Introduction 1

1.2. Methodology of Study 2

2. SECTION TWO 4

2.1. Basic Profi le of Bhutan 4

2.2. Economic Growth 6

2.3. Relations with India 8

2.4. Framework of Environmental Legislations 9

3. SECTION THREE 11

3.1. Hydropower Development 11

3.2. Energy Overview 14

4. SECTION FOUR 17

4.1. Introduction to Case Study Projects 17

4.2. Chhukha HEP 17

4.3. Kurichhu HEP 18

4.4. Tala HEP 19

4.5. Punatsangchhu I HEP 20

4.6. Mangdechhu HEP 21

4.7. Punatsangchhu II HEP 22

5. SECTION FIVE 24

5.1. Implications of Modality of Agreements 24

5.2. Implications to Economy 27

5.3. Implications to Ecology 30

5.4. Implications to Communities 36

6. SECTION SIX 42

6.1. Conclusion and Recommendations 42

ANNEXURE 1 - List of hydropower projects planned by 2020 48

ANNEXURE 2 - List of hydropower projects planned by 2030 49

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LIST OF TABLES

Table 1 India’s Contribution to Bhutan’s Five Year Plans 8

Table 2 List of Commissioned Hydropower Projects in Bhutan 12

Table 3 List of Projects Planned Under the 2006 Umbrella Agreement 14

Table 4 NLDC’s Record of Electricity Generated on 23 July 2015 16

Table 5 Contracts Awarded for the Hydropower Projects Under Construction 26

Table 6 Economic Indicators for Bhutan 28

Table 7 Financial Details of Completed and Under Construction HEPs 29

Table 8 Impacts of Punatsangchhu I, II & Mangdechhu on Land 37

LIST OF FIGURES

Figure 1 Farming as a Primary Source of Income in Bhutan 5

Figure 2 River Pachu 6

Figure 3 Bhutan Hydropower Plants Map 13

Figure 4 Kurichhu Hydropower Dam Reservoir 18

Figure 5 Mangdechhu Hydropower Project Site 21

Figure 6 Original Project Cost versus Escalated Cost 30

Figure 7 Landuse Change Map for Chukkha and Tala Hydropower Projects 33

Figure 8 Landuse Change Map for Kurichhu Hydropower Project 33

Figure 9 Landuse Change Map for Mangdechhu Hydropower Project 34

Figure 10 Landuse Change Map for Punatsangchhu I and II Hydropower Projects 34

Figure 11 Plying of Heavy Vehicles at the Mangdechhu project site 39

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List of Acronyms

ADB Asian Development Bank

BCCI Bhutan Chamber of Commerce & Industry

BEA Bhutan Electricity Authority

BHEL Bharat Heavy Electrical Limited

BHUCORE Bhutan Consultancy & Research

BPCL Bhutan Power Corporation Limited

BRICS Brazil, Russia, India, China, South Africa

CAG Comptroller and Auditor General of India

CDM Clean Development Mechanism

CEA Central Electricity Authority

CEIA Cumulative Environmental Impact Assessments

CER Certifi ed Emission Reduction

CHPA Chhukha Hydel Power Authority

CSMRS Central Soil & Materials Research Station

CWC Central Water Commission of India

CWPRS Central Water & Power Research Station

DGPC Druk Green Power Corporation

DoE Department of Energy

DPR Detailed Project Report

EIA Environment Impact Assessment

FGD Focus Group Discussion

GDP Gross Domestic Product

GLOF Glacial Lake Outburst Flood

GNH Gross National Happiness

GoI Government of India

GRF Government Reserve Forests

GSI Geographical Survey of India

HCC Hindustan Construction Company

HEP Hydroelectric Project

HRT Head Race Tunnel

HV High Voltage

IBSA India, Bhutan, South Africa

IG Inter Governmental

IUCN International Union for Conservation of Nature

JV Joint Venture

KHPC Kurichhu Hydro Power Corporation Limited

L & T Larsen and Toubro

LV Low Voltage

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MEA Ministry of Economic Affairs

MHPA Mangdechhu Hydro Power Authority

MV Medium Voltage

MW Mega Watts

NEC National Environment Commission

NHPC National Hydro Power Corporation of India

NLDC National Load Dispatch Center

NSB National Statistical Bureau of Bhutan

PAP Project Affected People

PDD Project Design Document

PHPA Punatsangchhu Hydroelectric Project Authority

PPP Public Private Partnership

R & R Resettlement and Rehabilitation

RAA Royal Audit Authority of Bhutan

RGoB Royal Government of Bhutan

RMA Royal Monetary Authority

RoR Run of the River

RS Reservoir Scheme

RWSS Rural Water Supply Scheme

SANDRP South Asia Network on Dams, Rivers & People

SIA Social Impact Assessment

SJVN Satluj Jal Vidyut Nigam Limited

THDC Tehri Hydro Development Corporation Limited

THPA Tala Hydroelectric Project Authority

ToR Terms of Reference

UNESCO United Nations Educational, Scientifi c and Cultural Organization

UNFCCC United Nations Framework Convention on Climate Change

WAPCOS Water and Power Consultancy Services

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Executive Summary

This report generates a preliminary analysis of the energy cooperation between India and Bhutan,

the modalities and conditionalities of the agreements signed by them, and the implementation of

hydropower projects in Bhutan. The study selected six projects as case studies for detailed analy-

sis - Chhukha, Kurichhu, Tala, Punatsangchhu I, Punatsangchhu II and Mangdechhu Hydroelectric

Projects (HEP).

Since commissioning the fi rst hydropower plant in 1988, Bhutan has largely expanded its economy

by exploiting natural resources for the generation of hydropower. The country’s relation with India

has provided it with the necessary technical and fi nancial assistance and India’s huge power defi cit

has created the market for Bhutan’s surplus power. While the country claims a hydropower potential

of about 30,000 MW, the installed generation capacity reached 1,608 MW in 2015 with the comple-

tion of the sixth project.

Hydropower projects in Bhutan have largely been implemented though bilateral agreements with

India. In July 2006, the two countries signed a framework agreement on hydropower development

and trade and undertook to develop 10,000 MW of hydropower from 10 large projects.

The hydropower sector has undoubtedly benefi tted Bhutan’s economy through substantial contri-

butions to the national revenue and by providing the much-needed boost to kick-start the industry

and service sector. However, the sector is currently facing a multitude of problems, particularly of

economic and environmental nature.

The hydropower projects implemented with assistance from India are implemented jointly through

project authorities with representatives from both governments. Analysis of projects reveals that the

control of management in project authorities is skewed in the favour of India. Indian citizens occupy

a disproportionate percentage of decision-making roles within project authorities. Furthermore, the

planning, designing and management of projects, implemented under the India-Bhutan energy

cooperation agreement, and all major construction and supply contracts are handled by Indian

agencies.

There is minimal access to essentially basic information relating to the agreements and hydropower

projects implemented with assistance from India while projects implemented with assistance from

the Asian Development Bank (ADB) and other governments have proactively disclosed basic infor-

mation.

The hydropower sector’s fi nancial performance has seen deterioration, indicating that its commercial

profi tability cannot be taken for granted. The net profi t per unit of electricity sold has fallen sharply

since 2007. Simultaneously, the sector’s contribution to the national budget has reduced and

Bhutan’s external debt has increased. Of Bhutan’s total outstanding external debt of Rs. 11,621 Cr,

the standalone debt of the hydropower sector alone is nearly 60 per cent. The model of fi nancing

hydropower projects under the India-Bhutan energy cooperation agreements has witnessed a trend

of reversing the grant-loan ratio, which will not only increase Bhutan’s debt, but also increase cost

per unit of electricity exported to India. The grant components for the projects fi nanced by India

have been reduced from 70 per cent to 30 per cent and the loans have risen from 30 per cent to 70

per cent.

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The study also fi nds that escalation of costs is higher in projects implemented with assistance from

India in relation to projects implemented with assistance from ADB or other governments. The

escalation of cost is the most alarming for the Punatsangchhu I HEP where the project cost has

increased from the originally estimated cost of Rs. 3,400 Cr in 2008 to a whopping Rs. 9,700 Cr in

2015.

Preliminary information indicates that the environment is taking a backseat in the development of

hydropower. This study fi nds that both governments approve hydropower projects before assess-

ing them for environmental impacts and this has contributed to adverse environmental conse-

quences. Findings of this study also indicate that impacts of hydropower projects are not suffi ciently

assessed, thereby impeding mitigation plans. The Chhukha and Tala hydropower projects have

rendered a stretch of 35 km on River Wangchhu nearly dry with limited or no fl ow of water. The im-

pacts from projects include loss of forest lands; disturbance to wildlife habitat; noise pollution due

to blasting and tunneling activities; impacts on fi sh breeding and migration; extreme dust pollution

leading to respiratory disorders, lower crop productivity and pollution of water sources; damage

to open water bodies such as streams and ponds causing severe stress on water resources in the

region. Also, even though projects have been planned and constructed in close-quarters and many

a times on the same river course, basin wide studies to assess cumulative impacts of projects have

not been conducted.

While local people lost wetlands and dry lands to hydropower projects, they have not been given

employment, either during the construction phase or during operation. The study also notes

that consent of land owners was not sought prior to acquisition of their lands and the affected

people were not informed of the potential adverse impacts of large hydropower projects during

consultative meetings.

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Implications of Modality of Agreements

• Lack of access to essentially basic information relating to agreements

• Minimal disclosure on hydropower projects implemented with assistance from India

• Control of management in project authorities is skewed in favour of India

• All major contracts for work are awarded to Indian agencies

• Concerns over quality of work of consultants and contractors

• Lack of opportunities for the private sector in Bhutan

Implications to Economy

• Hydropower sector’s fi nancial performance has fallen; net profi t per unit of electricity sold and

the sector’s contribution to national budget has reduced

• Bhutan’s external debt is witnessing a steady rise

• Enormous increase in project costs severely questions fi nancial viability of electricity

• Funds for hydropower projects from India are disbursed directly to project authorities in Bhutan

bypassing the national budget

Implications to Ecology

• Planning of hydropower projects does adequately not factor environment impacts

• EIA reports are not made public

• Impacts from projects include loss of forest lands and disturbance to wildlife habitat, noise

pollution and damage to buildings due to blasting and tunneling activities, damage to open

water bodies such as streams and ponds and severe stress on water resources in the region

• Downstream impacts in Assam have not been assessed

• Adverse impacts on fi sh breeding and migration

• Inadequate environmental fl ows in rivers

• Basin wide studies to assess cumulative impacts of projects have not been conducted

• Severe geological risks of earthquakes and Glacial Lake Outburst Floods (GLOF)

Implications to Communities

• SIA reports are not made public; EIA reports were not provided to affected communities

• The six case study hydropower projects have acquired dry lands, wetlands and orchards

• No consent was sought from people for acquisition of their lands

• Potential adverse impacts of large hydropower projects on the natural environment and people

were not discussed during consultative meetings with community

• Dust pollution from construction of hydropower projects has caused respiratory illnesses

• No formal procedures for addressing grievances

• Projects have not generated employment for local communities

• Families losing land are provided 10,000 units of free electricity per annum per acre lost

• Projects have constructed basic infrastructure such as roads, health facilities and schools

Key Findings of the Study

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SECTION ONE

1.1 Introduction

Bhutan’s relation with India dates back to the period of the British rule in India and it was in this

period that trade between the two countries was fi rst recorded. Historical relations however date

back to the 747 A.D., when the Indian saint Padmasambhava introduced Buddhism in Bhutan.1

Following India’s independence in 1947, the two countries solidifi ed their informal relations with

the Treaty of Friendship and Cooperation in 1949, which provided for perpetual peace and friend-

ship, free trade and commerce, and equal justice to citizens of both countries. This treaty enabled

deep political connections between the two countries and is the foundation of subsequent eco-

nomic cooperation arrangements. The friendship was re-affi rmed in 2007 when the two countries

signed an updated treaty2 to refl ect the present-day nature of the relationship.

The presence of Chinese troops near Bhutan’s border, the annexation of Tibet by the People’s

Republic of China and Chinese claims over Bhutanese territory, compelled Bhutan in the 1950s to

re-evaluate its traditional policy of isolation. Consequently, Bhutan was more inclined to develop

relations with India and the process of socio-economic development in Bhutan began with Indian

assistance. Simultaneously, border tensions between India and China which escalated into military

confl ict in 1962, also necessitated India to play a role in establishing stability in the Himalayan

region and in ensuring that Bhutan not remain a weak buffer state.3

The two countries strengthened their relations in the 1950’s under the leadership of the third king

of Bhutan, His Majesty Jigme Dorji Wangchuck and the then Indian Prime Minister, Jawaharlal Ne-

hru. Formal bilateral relations between Bhutan and India were established in January 1968 with the

appointment of a resident representative of the Government of India (GoI) in Bhutan’s capital city of

Thimphu. India sponsored4 Bhutan’s application for UN membership in 1971 and thereafter Bhutan

began to gradually diversify its relations with the international community.

The changing global paradigm of the 21st century has compelled the forging of new alliances that

yearn to become mutually benefi cial partnerships. The concentration of global powers, volatility of

the economic markets sparked by recessions, increasing challenges in meeting needs from devel-

oping countries and the waning of older alliances prompted the resurgence of the South-South

cooperation with initiatives such as the IBSA and BRICS.

There are many claims and speculations regarding the emerging South-South Cooperation; that the

dual identity of donor and recipient will enable countries to understand the drawbacks of tradi-

tional development models, the possibility of new alternative models that are locally and contextu-

ally relevant, development that is demand driven and based on successful local experiences and

aid that is free of policy conditionalities. The alliances between southern developing countries

will positively promote economic cooperation, increase local capacities and generate knowledge,

strengthen voices of developing countries in the global platform and add to their bargaining power

in multilateral negotiations. However, unless the countries stand fi rm to fi ght poverty that is exac-

erbated by the models of economic development currently at play in developing countries, ensure

distributional justice in terms of resource and opportunity, and move towards envisioning a balance

1 Indo – Bhutanese Rela ons: A Historical Perspec ve. 2009. Dr. Lopamudra Bandyopadhyay. Global India Founda on.2 India – Bhutan Friendship Treaty of 2007. www.carnegieendowment.org/newsle ers/SAP/pdf/march07/india_bhutan_

treaty.pdf3 Security of Bhutan: Walking Between the Giants. Dorji Penjore. The Centre for Bhutan Studies.4 India and Her Neighbours. N. Jayapala. 2000. Atlan c Publishers and Distributors.

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in global powers, the new alliances and platforms will mirror existing platforms which have failed

to deliver equitable development of populations. The progress of platforms such as IBSA and BRICS

in the coming decade will eventually determine success or failure of the models.

Regional cooperation between countries has existed long before multi-lateral platforms and can

possibly offer a nuanced understanding and knowledge of existing partnerships. This study aimed

to generate a socio-political analysis of the regional cooperation between India and Bhutan. Learn-

ing from such a study can not only strengthen the relation between the two countries but also

facilitate a better understanding of mutually benefi cial cooperation between countries

Bhutan is India’s oldest, and remains as the largest, recipient of development assistance. India is

also Bhutan’s leading trade partner. The India-Bhutan relation is also perhaps the only bilateral

engagement in South Asia that has stood the test of time and therefore beckons deeper and critical

inquiry. The modalities and conditionalities of the ‘friendship’ need deeper scrutiny to understand

how the arrangement benefi ts both countries and how the profi ts, benefi ts, and impacts are shared

between them.

1.2 Methodology of Study

This study endeavored to analyze the India-Bhutan energy cooperation agreements and the

resultant hydropower projects implemented in Bhutan. [Please note: hydropower is used

interchangeably with hydroelectric in this report.] For the purpose of this study, six projects were

selected as case studies for detailed analysis. These projects are Chhukha Hydroelectric Project,

Kurichhu Hydroelectric Project, Tala Hydroelectric Project, Punatsangchhu I Hydroelectric Project,

Punatsangchhu II Hydroelectric Project and Mangdechhu Hydroelectric Project.

The analysis was made possible through desk research of secondary data and information; semi-

structured interviews with government functionaries, project authorities, sector experts, journalists,

and concerned individuals; and focus group discussions (FGD) with people in project affected areas.

Focus groups discussions were conducted between 19 and 24 July 2015 and between 7 and 17

September 2015 with communities affected by fi ve out of the six case study projects. Focus group

discussions were not conducted with communities impacted by the Chhukha project as the project

was implemented nearly three decades ago.

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Case Study(Selection of 6 hydro-electric projects as case studies for detailed analysis)

Semi – structured Interviews*(Conducting interviews with individuals from government departments and other organizations to carry out a stakeholder assessment of their perceptions regarding the nature of development

projects and their impact on the communities involved, on the environment etc.)

Desk Research(Gathering the secondary data regarding the India- Bhutan Cooperation Agreements and other HEP

related information)

Focus Group Discussions(Conducting discussions with Project Affected Population (PAP) to understand ground realities

and community participation in any decision making process)

TalaPeople from affected villages of Tabji, Rinchhentse, Dangreyboog, Gengu, Khamaedthapang, Nimgang, Tashilakha, Bongo and Tsimalakha

MangdechhuPeople from affected villages of Kuengarabten,Eusa, Taktse, Samcholing-Khatoe, Samcholing Lkhatay and Khamay

KurichhuPeople from affected villages within Saling, Drepong and Mongar Gewogs in Mongar district

Punatsangchhu I &Punatsangchhu II People from affected villages in Chiwogs of GasetshoGom, GasetshoWom, Thedtsho, Daga (Dagar), Athang and Ruepisa in Wangdue Phodrang district

*Interviews with- National Council of Bhutan- Punatsangchhu II Hydroelectric

Project Authority- Department of Hydropower and

Power Systems- Bhutan Power Corporation Limited- National Load Dispatch Centre- Druk Green Power Corporation- Mangdechhu Hydroelectric Project

Authority- National Environment Commission

- Department of Forest & Park Services

- Department of Disaster Management

- Bhutan Chamber of Commerce and Industry

- The Bhutanese (newspaper)- Royal Society for Protection of

Nature- WWF Living Himalayas Initiative

Offi ce of the National Council Members

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SECTION TWO

2.1 Basic Profi le of Bhutan

The Kingdom of Bhutan is traditionally referred as Drukyul, or the Land of the Thunder Dragon.

Bhutan rests in the southern slopes of the eastern Himalayas, landlocked amidst the Tibet Autono-

mous Region (China) to the north and the Indian territories of Arunachal Pradesh to the east, Assam

and West Bengal to the south, and Sikkim to the west. Huge variations in altitude are characteristic

of this country that is dominantly a spread of steep mountains sandwiched between rich rivers, nar-

row gorges, deep valleys and few plains. The altitudes of the mountains within Bhutan range from

just 100 meters to nearly 7500 meters.

In 2008, following a decade of planning, Bhutan transitioned5 peacefully from absolute monar-

chy to constitutional monarchy. King Jigme Khesar Namgyel Wangchuck, eldest son of King Jigme

Singye Wangchuck who abdicated the throne in favor of his son in 2006, transferred administrative

powers to the Council of Cabinet Ministers and allowed for impeachment of the King by a two-

thirds majority of the National Assembly. Under the present system6, the King is the head of the

state, the National Council with 25 elected members is the Upper House and the National Assembly

with 47 elected lawmakers from political parties is the Lower House. The executive power is vested

with Council of Ministers, headed by the Prime Minister, and legislative powers are vested with

the two houses. The capital city of Thimphu on the banks of the River Wangchhu houses the State

Secretariat of the Royal Government of Bhutan (RGoB).

Bhutan comprises of twenty dzongkhags7 (or districts) that are further divided into dungkhags (or

sub-districts), Gewogs (or a block of villages) and thromdes (or municipality). The twenty dzong-

khags comprise 205 Gewogs. Only some of the larger dzongkhags are sub-divided into dungkhags.

Therefore, some Gewogsin the country are subordinate to dungkhags while others are directly

subordinate to dzongkhags. Gewogs are administratively subdivided into chiwogs which comprise

a small number of villages. However, the thromde is now recognised as the tertiary administrative

unit and as the most basic level of local government. These changes in the administrative divisions

within Bhutan are part of the country’s push towards decentralisation and devolution of power and

authority.

The population of Bhutan8 in 2014 was 7, 57,042. According to the 2012 data from the National

Statistics Bureau of Bhutan (NSB), the literacy level is at 63 per cent, average life expectancy is

67 years and the population living below poverty rate is 12 per cent. The Ngalops and Sharchops

constitute 50 per cent, Lhotshampas constitute 35 per cent and indigenous tribes constitute 15 per

cent. Dzongkha is the offi cial language and Sharchhopkha, Lhotshamkha (Nepali), Dzala, Limbu,

Kheng, Rai and other dialects are spoken in the different regions. Television and the internet were

introduced to the Bhutanese people as late as 1999. As of 2013, about 37 per cent of the popula-

tion lived in urban centers9.

5 Democracy in Bhutan - An Analysis of Cons tu onal Change in a Buddhist Monarchy. Marian Gallenkamp. 2010. Ins tute of Peace and Confl ict Studies.

6 Polity IV Country Report 2010: Bhutan. Poli cal Instability Task Force. Central Intelligence Agency.7 Na onal Portal of Bhutan. www.bhutan.gov.bt/government/dzongkhags.php8 Bhutan at a Glance. October 2015. Na onal Sta s cs Bureau. Royal Government of Bhutan. 9 World Development Indicators. The World Bank. www.data.worldbank.org/indicator/SP.URB.TOTL.IN.ZS

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Figure 1 Farming as a Primary Source of Income in Bhutan

The country continues to be a traditional Buddhist society, deeply engrained in Bhutanese culture,

and the protection of cultural and natural heritage is a high national priority. Although moderniza-

tion is slowly making its way, generating modern urban settlements, most of the people in Bhu-

tan still live in small remote villages. The predominant way of life is small family farms and the

primary occupation of the Bhutanese people is farming.

Bhutan has four major river systems10 of Amochhu (or Torsa), Wangchhu (or Raidak), Punatsangch-

hu (or Sunkosh) and Manas (or Drangmechhu). Tributaries of River Wangchhu include Pachhu,

Tachhu, Hachhu, Thimchhu and Wongchhu; tributaries of River Punatsangchhu include Mochhu,

Phochhu, Tangchhu, Harachhu, Dagachhu, Basochhu and Dangchhu; and tributaries of River Manas

include Mangdechhu, Kurichhu, Chamkarchhu, Drangmechhu, and Kholongchhu.

10 Bhutan Biodiversity Ac on Plan. February 2009. Na onal Biodiversity Centre. Ministry of Agriculture. Royal Government of Bhutan.

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Figure 2 River Pachu

The geographical and climatic variation in Bhutan has contributed to an equally startling bio-diverse

ecosystem. Bhutan has about 5400 species of plants, over 700 species of birds11 and its forests are

home to healthy populations of species such as the royal Bengal Tiger, snow leopard, clouded leop-

ard, one-horned rhino, golden langur, grey langur, hispid hare, sloth bear, goral, serow, Himalayan

black bear, red panda, Himalayan musk deer, blue sheep, marmot, Tibetan wolf and antelope.

The fragile mountain ecosystem is however under constant risk of hazards12 like earth quakes, fl ash

fl oods, landslides and Glacial Lake Outburst Floods (GLOF). Such impending dangers obligate the

conservation of forests to minimise siltation, check landslides and reduce risks of fl ooding and earth

quake. According to the National Statistics Bureau of Bhutan, the environmental challenges facing

the country include unsustainable agriculture, deforestation, overgrazing, infrastructure develop-

ment and mining, increasing solid waste, and stress on water resources.

2.2 Economic Growth

The Kingdom of Bhutan cautiously opened its borders to outsiders in the 1970s and joined the

United Nations13 in 1971. The offi cial Bhutanese currency, the ngultrum (BTN), was introduced in

1974. The ngultrum was pegged to the Indian rupee and its fl uctuation vis-à-vis major international

currencies are a refl ection of developments in India. Till the 1960s, economic aid from India was the

only source of revenue to the government. However, with admittance to the United Nations, Bhutan

began to receive development assistance from multilateral and other bilateral donors.

11 Interna onal Encyclopaedia of Himalayas (5 Vols. Set). Ramesh Chandra Bisht. 2008. Mi al Publica on.12 Country Environment Note: Bhutan. 2014. Asian Development Bank.

www.adb.org/sites/default/fi les/linked-documents/cps-bhu-2014-2018-ena.pdf13 Permanent mission of the Kingdom of Bhutan to the United Na ons in New York. United Na ons. www.un.int/bhutan/

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The rugged terrain, compounded by the lack of access to sea, does not provide economic advantage

to Bhutan. Its geographic placement makes navigation, communication, construction of infrastruc-

ture, development, and establishment of industries rather diffi cult and expensive. Starting with the

commissioning of the fi rst hydropower plant in 1988, Bhutan has largely expanded its economy

by exploiting natural resources for the generation of hydropower. It is one of the world’s smallest

economies14, with a GDP representing less than 0.01 per cent of the world economy. Bhutan grew

rapidly with the commissioning of the fi fth hydropower project in 2005. The economy grew15 by

8 per cent in 2005, by 14 per cent in 2006 and it was the second fastest growing economy in the

world in 2007 with an annual growth rate of 22.4 per cent. The GDP reached an all time high of

1.82 USD billion in 2011 but remained the same in 201416. With the completion of Dagachhu hydro-

power project in 2015, the World Bank projects Bhutan’s economy to grow at 7.9 per cent17.

Bhutan’s economy is based on agriculture, forestry, tourism and sale of electricity. Fifty six per-

cent of the population depend on agriculture, 22 per cent depend on industry and 22 per cent on

services. In 2014, agriculture contributed to 14.4 per cent of the GDP, industry contributed 41.6 per

cent and services contributed 44 per cent18.

Agrarian practices consist largely of subsistence farming and animal husbandry. Agricultural pro-

duce includes rice, chillies, dairy (some yak, mostly cow) products, buckwheat, barley, root crops,

apples, citrus and maize. The primary sources of water for irrigation are streams and rain. Though

agriculture has been the mainstay of Bhutan’s economy and a majority of its population depends

on farming, only 2.9 per cent of the country is under agriculture. And of the total land area of

38,394 sq. km., irrigated land comprises 319 sq.km. or just 0.8 per cent making wetlands exception-

ally valuable. Over the years, the average landholding of Bhutanese farmers has reduced, impacting

the sector’s contribution to national GDP19.

The industrial sector is at a nascent stage, and though most production comes from cottage indus-

try20, larger industries are being encouraged by the Royal Government of Bhutan. Small cottage in-

dustries manufacturing food products, handicrafts and handloom are found in several regions. The

manufacturing sector in Bhutan includes ferrous silica, cement, wood products, alcoholic beverages,

calcium carbide, construction material and agricultural products. Much of the material for everyday

consumption is imported from other countries. The country has an installed generation capacity

of 1,608 MW and claims a hydropower potential of about 30,000 MW21, out of which 24,000 MW is

economically viable potential. Though Bhutan has a coal reserve of 1.3 million tonnes, it mines less

than 1,000 tonnes a year22. There has been recent growth in the technology sector, in areas such as

green tech, consumer internet and e-commerce. Also, software imported from India is packaged in

Bhutan and exported to Hong Kong and Singapore.

Bhutan’s major imports23 are petroleum products, mineral products, base metals, machinery and

electrical appliances, automobiles and spares, wood, plastic, rubber, spices, and processed food.

Eighty percent of all imports are from India and the remaining is sourced from South Korea, Thai-

land, Singapore, Japan, China and Nepal. Bhutan’s main export partner is India which accounts for

14 The World Factbook. Central Intelligence Agency. www.cia.gov/library/publica ons/the-world-factbook/geos/bt.html

15 Bhutan Millennium Development Goals - Needs Assessment and Cos ng Report (2006-2015). November 2007. Planning Commission. Royal Government of Bhutan.

16 An investment guide to Bhutan Opportuni es and Condi ons 2013. United Na ons Conference on Trade and Development (UNCTAD).

17 Global Economic Prospects: Having Fiscal Space and Using It. January 2015. World Bank.18 Bhutan Country Strategy Paper 2007 – 2013. European External Ac on Service.19 Bhutan’s Experiments with Happiness. Nitya Jacob. 31 October 2013. Down to Earth. 20 Co age & Small Industry of Bhutan – Overview. 2011. Ministry of Economic Aff airs. www.moea.gov.bt/documents/fi les/

pub0nu5370zv.pdf21 Sustainable Hydropower Development Policy. 2008. Royal Government of Bhutan.22 Bhutan’s Experiments with Happiness. Nitya Jacob. 31 October 2013. Down to Earth. 23 Bhutan Trade at a Glance. World Integrated Trade Solu on. World Bank. www.wits.worldbank.org/CountrySnapshot/en/BTN

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around 90 per cent of the total. Export of electricity to India constitutes around 50 per cent and

other exports include metals, minerals, chemical products, timber, raw silk, fruit products and rub-

ber products. Other exports partners include Hong Kong, Bangladesh, Japan, Nepal and Singapore.

According to data from the Royal Monetary Authority of Bhutan, exports increased from Rs. 29,932

million in 2013 to Rs. 32,880 million in 2014 while imports in Bhutan increased from Rs. 51,970 mil-

lion in 2013 to Rs. 55,307 million in 201424.

2.3 Relations with India

India fi rst provided development assistance to Bhutan in 194925, the year of its own independence.

Efforts towards planned development in Bhutan began in the early 1960s and the First Five Year

Plan of Bhutan was launched in 1961. As the principal donor for socio-economic development in

Bhutan, India extends fi nancial assistance to Bhutan’s Five Year Plans. Development projects, such

as infrastructure, road construction or hydropower plants, also rely heavily on technical expertise

and contract labour from India.

Table 1 India’s Contribution to Bhutan’s Five Year Plans

Year Total Alloca ons(in Rs. Cr)

India’s Contribu on Percentage of India’s Contribu on (in per cent)

1961 (1st Plan) 10.72 10.72 100

1966 (2nd Plan) 20.22 20.22 100

1971 (3rd Plan) 47.52 42.66 90

1976 (4th Plan) 110.62 85.30 77

1981 (5th Plan) 444.05 134.00 30.2

1987 (6th Plan) 950.00 400.00 42.1

1992 (7th Plan) 2350.00 750.00 31.9

1977 (8th Plan) 4000.00 1050.00 26

2002 (9th Plan) 8900.00 2610.14 29.33

2008 (10th Plan) 14900.00 3400.00 23

2013 (11th Plan) 21300.00 4500.00 21

Source: India-Bhutan Relations. No. 29/R N/Ref./2014, Lok Sabha Secretariat

Between 2000 and 2013, Bhutan received 49 per cent of the grants and loans committed to foreign

countries from the Indian budget, making it the largest recipient of Indian development assistance.

India’s contribution of Rs. 4,500 Cr to Bhutan’s 11th Five Year Plan (2013-2018) accounts for 68 per

cent of India’s total external assistance26. 

India’s assistance towards mega projects, including hydropower, is additional to its contribution to

the Five Year Plans. India also provides petrol and cooking gas to Bhutan at the same subsidized

rates at which it provides to its own population. The Agreement on Trade and Commerce signed by

the two countries allows Bhutanese imports and exports from third-country markets to transit India

without tariffs. India is not only Bhutan’s main development partner but also its principal trade part-

ner as 80 percent of all imports come from India and 90 per cent of exports go to India.

24 Monetary Policy Statement. May 2015. Royal Monetary Authority of Bhutan.25 The emerging foreign assistance policies of India and China: India as a development partner. Eswaran Sridhara.March 2014.

Ins tute for the Advanced Study of India, University of Pennsylvania.26 Economic Coopera on with Bhutan. Embassy of India, Thimphu, Bhutan. h p://www.indianembassythimphu.bt/pages.

php?id=33

9

“The Kingdom’s relationships with India will remain of primary importance. The contribution made by India to the

Kingdom’s development can be expected to lessen in the years ahead, with the India-Bhutan relationship maturing

into one that gives increasing importance to trade and economic transactions within the framework of new bilateral

and sub-regional agreements. The export of hydropower and other goods to India will mean that our economy will

continue to be inextricably entwined with that of our neighbor and, by extension, to the global economy.”

Bhutan 2020: A Vision for Peace, Prosperity & Happiness. 1999. Gross National Happiness Commis-

sion, Royal Government of Bhutan.

2.4 Framework of Environmental Legislations

Efforts to protect the biodiversity and forestlands are a constitutional mandate in Bhutan. The 2008

Constitution27 stipulates that a minimum of 60 per cent of the total land in Bhutan remain forested.

According to the 2010 assessment of land cover conducted by the Department of Forest and Park

Services, the forest cover is about 72 per cent28 and nearly 80 per cent of bushes and sparse vegeta-

tion are included. Furthermore, about 50 per cent of the land is already designated as protected

areas. With his famous declaration, that “Gross National Happiness is more important than Gross

National Product”, the fourth King of Bhutan, Jigme Singye Wangchuck, introduced the distinctive

concept of GNH to the people of Bhutan and the world. The four pillars of GNH focus on sustain-

able development, good governance, preservation and promotion of cultural values and conserva-

tion of the natural environment. The framework of GNH is also enshrined in the 2008 Constitution

and guides Bhutan’s development and policy formation.

Bhutan’s efforts to design legislations and implement policies to preserve its vast and diverse

natural resources are relatively recent. The main legislations29 concerning the protection of environ-

ment are Forest and Nature Conservation Act 1995, Environmental Assessment Act 2000, National

Environment Protection Act 2007, Waste Prevention and Management Act 2009 and Water Act 2011.

Hydropower development is governed by the Sustainable Hydropower Development Policy of 2008.

The National Environment Protection Act is the umbrella legislation that “defi nes roles and responsi-

bilities of key agencies in environment management and sets out requirements for the protection of

the physical and ecological environment”. The Environmental Assessment Act stipulates the require-

ments for conducting environmental assessments and obtaining environmental clearances. The For-

est and Nature Conservation Act lays down guidelines for extracting forest resources and protecting

Bhutan’s wildlife.

The National Environment Commission (NEC) is an autonomous regulatory authority. It is the high-

est decision-making body on matters concerning environmental management. The NEC also works

to include environmental protection clauses in various policies & Acts. The Prime Minister chairs

the Commission, which has nine members, special advisors and a secretariat. The NEC secretariat is

responsible for implementing policies and regulations formulated by the commission.

All development activities in Bhutan are subject to environmental assessment. All projects require

an Initial Environmental Assessment (IEA) while some projects such as farm roads do not require

Environment Impact Assessment (EIA) and Social Impact Assessment (SIA). IEAs have set guidelines

and EIAs are conducted on the basis of project specifi c ToR that are provided by the NEC. The Com-

mission has guidelines for specifi c industries and sectors, including hydropower.

27 The Cons tu on of the Kingdom of Bhutan. Royal Government of Bhutan. www.bhutanaudit.gov.bt/About%20Us/Man-dates/Cons tu on%20of%20Bhutan%202008.pdf

28 Has Bhutan gone greener?June 2, 2015. Kuensel.h p://www.kuenselonline.com/has-bhutan-gone-greener/29 Review and compendium of environmental policies and laws in Bhutan - Input to the Asian Judges Network on Environ-

ment. Antonia Gawel and Irum Ahsan. 2014. Asian Development Bank.

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The legislations implemented so far outline procedures to ensure the sustainable management of

forests, waterways, wildlife and plants but do not cover the whole range of issues, particularly in

regard to large-scale hydropower projects. The NEC is making earnest efforts to improve legislative

framework for environmental protection but lags behind in effective enforcement of set standards30.

Bhutan is at an important crossroad in this regard and the strength and quality of the legislations it

implements will determine the impact of large-scale projects on the country’s environment, wildlife,

culture, and people.

“Throughout the centuries the Bhutanese have treasured their natural environment and have looked upon it as the

source of all life. This traditional reverence for nature has delivered us into the twentieth century with our environ-

ment still richly intact. We wish to continue living in harmony with nature and to pass on this heritage to our future

generations”.

- His Majesty the Fourth King of Bhutan Jigme Singye Wangchuck  

30 Kingdom of Bhutan: Capacity Building of the Na onal Environment Commission in Climate Change. December 2009. Asian Development Bank.

11

SECTION THREE

3.1 Hydropower Development

The Royal Government’s decision to exploit the country’s water resources for production of electric-

ity and simultaneously boost the service industry has changed the economic scenario for Bhutan.

An estimate by Asian Development Bank (ADB), in 2012, shows that tourism and hydropower have

helped Bhutan’s economy grow at 8.2 per cent between 2008 and 2012. The rapid altitudinal varia-

tions with swift fl owing rivers make Bhutan a natural haven for hydro power production. The coun-

try’s relation with India has provided the necessary political will and India’s huge power defi cit has

created the market for Bhutan’s power. Hydropower has become the backbone of the Bhutanese

economy. The production of electricity is also expected to boost industrial activity within the country.

The models of hydropower plants employed in Bhutan so far are run-of-the-river (RoR) and res-

ervoir scheme (RS). The RS hydropower projects typically have large reservoirs to store water, and

electricity is produced by releasing water from the reservoir to a turbine, which activates a gen-

erator. RS projects provide a continuous supply of electricity (base load) as well as the ability

to start-up at short notice for peak load. RoR projects divert water from the river course to pass

through a channel or a tunnel, at about the same rate of the river fl ow, to spin the turbine. These

projects store smaller amounts of water. RoR plants provide for base load and allow for some

daily fl uctuations in demand by regulating water fl ow. RoR projects are known to be small in size,

generating 30 MW, or less, of electricity.

India has been a key contributor to the development of the power sector in Bhutan and exclusively

benefi ts from Bhutan’s surplus power. The commissioning of the Chhukha Hydro-electric Project

(HEP) in 1988 facilitated the development of several industries including chemical carbides, wood

processing, cement, ferrous alloys.

The development of hydro projects in Bhutan is largely based on bilateral agreements with India,

deriving its framework from the India-Bhutan Friendship Agreement31 of 1949. The Jaldhaka Agree-

ment signed in 1961 was the fi rst bilateral agreement between India and Bhutan, which enabled

the construction of a barrage in Bhutanese territory for a 27 MW power plant in West Bengal. In the

1970s, power import connections were established at 3 places in southwest Bhutan to electrify Bhu-

tanese villages and towns bordering India. The agreement for implementing the 336 MW Chhukha

run-of-the-river HEP was signed in 197432 and the plant was fully commissioned in 1988. The

agreements for implementing the 60 MW Kurichhu reservoir HEP and the 1020 MW Tala run-of-the-

river HEP were signed in February 1994 and March 1996.

Other international development partners33 of Bhutan include Austria, Japan, Netherlands, Norway

and the Asian Development Bank (ADB). The Basochhu I and II power projects were implemented

in 2001 and 2005 with assistance from the Austrian government34 and the Dagachhu power proj-

ect35, completed in 2015 with assistance from ADB, Austria and Japan, was the fi rst Public Private

Partnership (PPP) project implemented in Bhutan.

31 Indo-Bhutanese Rela ons: A Historical Perspec ve. Dr. Lopamudra Bandyopadhyay. 2009. Global India Founda on32 Agreement between the government of India and the Royal Government of Bhutan regarding the Chukha hydro-electric

project. March 23, 1974. www.mea.gov.in/bilateral-documents.htm?dtl/6349/Agreement33 Three Decades of Development Partnership - Royal Government of Bhutan and Asian Development Bank. 2014. Asian

Development Bank.34 Project profi le of Basochhu Hydropower Plant. Druk Green Power Corpora on. www.drukgreen.bt/index.php/bhp-menu/about-bhp35 Project profi le of Basochhu Hydropower Plant. Druk Green Power Corpora on. www.drukgreen.bt/index.php/subsidiary-

companies/dhpc-dagacchu-hydro-power-corpora on/289-background-of-the-project

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Three models of developing projects have emerged in the hydropower development sector in Bhu-

tan36 – Inter-governmental (IG), Joint Venture (JV), and Public Private Partnerships (PPP). In the IG

model, the project is implemented by an independent project authority comprising of actors from

both governments. Within two years of completing and commissioning a project, the project author-

ity is dissolved and the project is amalgamated into the Druk Green Power Corporation (DGPC). The

project cost is met with a grant and loan from the Government of India.

The JV model involves the incorporation of project specifi c Joint Venture companies, with DGPC as

one of the JV partners. The JV is the project authority. This model is achieved through the project

fi nance mode where each JV partner brings in 50 per cent of the funds. Even though the Sustain-

able Hydropower Policy of 2008 requires that the Government of Bhutan own a minimum of 51 per

cent of the company, the JV has a built-in debt equity ratio of 70:30. The equity is split between JV

partners and debt is raised from the open market and banks. In IG projects, only surplus electricity

is sold to India, whereas in JV projects the fi nancial model does not allow for sale of just surplus

electricity. For PPP projects, the investment is tied to market availability.

The three projects implemented with assistance from India-Chhukha, Kurichhu and Tala HEPs,

were implemented in the IG model. The project costs for these projects were met with a 60 per

cent grant and 40 per cent loan from the Government of India (GoI). Basochhu I and II HEPs were

implemented as Joint Ventures and the Dagachhu HEP was implemented as a PPP. The Bhutanese

government and people are most comfortable with the IG model, as in this model, commissioned

projects are owned by the Government of Bhutan.

Table 2 List of Commissioned Hydropower Projects in Bhutan

S. No. Project Capacity (MW)

Year (full commis-sioning)

India-Bhutan Agreement

Project Model

ProjectCost (in Rs. Cr)

Funding Agency

1. Chhukha 336 1988 Yes; 1974 IG 246 GoI

2. Kurichhu 60 2002 Yes; 1994 IG 564 GoI

3. Basochhu I 24 2001 No JV 144 Austria

4. Basochhu II 40 2005 No JV 182 Austria

5. Tala 1020 2007 Yes; 1996 IG 4,126 GoI

6 Dagachhu I 126 2015 No PPP 1,296 ADB, Austria, Japan Special Fund & NPPF

Source: Compiled by Vasudha Foundation

Out of the 30,000 MW potential capacity of electricity generation, Bhutan has so far harnessed less

than 6 per cent with the completion of 6 hydropower projects. Bhutan requires about 300 MW of

the 1,608 MW it currently generates. The huge surplus in electricity, particularly in the wet season, is

exported to India. In the winter dry season, hydroelectric generation plummets to a point at which

Bhutan imports electricity from India. Based on an assessment conducted by the Central Water

Commission of India (CWC) and Central Electricity Authority of India (CEA), the 2004 Updated Bhu-

tan Power System Master Plan37 identifi ed 76 economically viable locations for hydropower projects.

If this plan were to be fully implemented, there would be one or more hydropower projects on

every one of Bhutan’s rivers and tributaries. Refer Annexure 1 for list of projects under construction

and planned by 2020 and Annexure 2 for list of projects planned by 2030.

36 Hydropower Development Policy and Programmes. November 2015. Na onal Council of Bhutan. www.na onalcouncil.bt/assets/uploads/fi les/Hydro%20Report%20as%20on%20Nov%2026%202015-%20Final%20for%20

delibera on%202.pdf37 Water Resources Management Plan and Update of the Power System Master Plan. April 2004. Department of Energy.

Royal Government of Bhutan.

13

Figure 3 Bhutan Hydropower Plants Map

In July 2006, India and Bhutan signed a framework agreement38 on hydropower development

and trade to facilitate development of hydropower projects and transmission systems and trade in

electricity, through both public and private sector engagements. Under this Umbrella Agreement,

India promised to provide technical and fi nancial support and agreed to import a minimum of 5000

MW of hydropower by 2020. The agreement was revised in 2009 to expand the generation capacity

to 10,000 MW39. An empowered group with representatives from both governments was set up to

facilitate identifi cation of projects, preparation of Detailed Project Reports (DPR) and selection of

agencies for speedy implementation of projects.

The 10 projects identifi ed under the 2006 Umbrella Agreement are Punatsangchhu I, Punatsangch-

hu II, Mangdechhu, Bunakha, Sunkosh RS & Sunkosh LB, Chamkarchhu, Kuri-gongri, Kholongchhu,

Wangchhu and Amochhu. Six of these projects are planned in the IG model and four are planned

as JVs. Bunakha is a JV between DGPC and THDC India Limited (formerly Tehri Hydro Development

Corporation Limited), Chamkarchhu I is a JV between DGPC and National Hydro Power Corporation

of India (NHPC), Kholongchhu and Wangchhu are JVs between DGPC and Satluj Jal Vidyut Nigam

Limited (SJVN). Six of the projects are run-of-the-river (RoR) hydropower plants and four are large

reservoir (RS) based projects. Construction work for Punatsangchhu I, Punatsangchhu II and Mang-

dechhu is ongoing. The other projects are in various stages of planning.

38 Protocol to the 2006 Agreement between the Government of India and the Royal Government of Bhutan concerning coopera on in the fi eld of hydroelectric power h ps://www.interna onalrivers.org/fi les/a ached-fi les/india_bhutan_hy-dropower_protocol_march_2009.pdf

39 India-Bhutan Power Coopera on: Between Policy Overtures and Local Debates. Medha Bisht. 2011. Ins tute for Defence Studies and Analyses.

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Table 3 List of Projects Planned Under the 2006 Umbrella Agreement

S. No. Project Capacity (MW)

Type of Project

Status Year of Agreement

Model Project Cost(in Rs. Cr)

1. Punatsangchhu 1200 RoR Under construc on 2007 IG 9,396

2. Mangdechhu 720 RoR Under construc on 2010 IG 4,500

3. Punatsangchhu II 1020 RoR Under construc on 2010 IG 7,435

4. Bunakha 180 RS Under planning 2014 JV 2,950

5. SunkoshRS 2560 RS Under planning NA IG 9,700

Sunkosh LB 35 RoR Under planning NA IG NA

6. Chamkarchhu I 770 RoR Under planning 2014 JV NA

7. Kuri – Gongri 2640 RS Under planning NA IG 20,000

8. Kholongchhu 600 RoR Under planning 2014 JV 4,076

9. Wangchhu 570 RoR Under planning 2014 JV 6,452

10. Amochhu 540 RS Under planning NA IG NA

Source: Compiled by Vasudha Foundation

In 2014, media reports indicated that the Indian government had not resolved40 to fi nance the 2,640

MW Kuri-Gongri, the 2,560 MW Sunkosh and the 540 MW Amochhu projects. Coincidentally, all of

them are reservoir projects and planned under the 2020 vision. India has not offi cially confi rmed

that it is backing out of the three projects. However, if India does pull back from these projects, the

huge amounts of money spent by the Bhutanese government to develop Detailed Project Reports

for the projects could go to vain. The progress made in the 10 projects has been slow41 and it is

speculated that Bhutan will only achieve 3,000 MW by 2020. 

Even though Bhutan’s Sustainable Hydropower Policy 2008 allows private sector companies to

participate in projects lesser than 25 MW, the government has not allowed the private sector to

independently take on hydropower projects. Bhutan also initially expressed discomfort with the

Indian government’s proposal to shift from the earlier inter-governmental (IG) model of fi nanc-

ing HEPs to the joint venture (JV) model. The 2006 Umbrella Agreement signed between the two

countries however stipulates greater participation from the private sector in both implementing and

fi nancing projects.

3.2 Energy Overview

Bhutan is the only country in South Asia with surplus power generation capacity and a power sector

that contributes signifi cantly to its national economy42. Electricity generation gained momentum in

Bhutan with the commissioning of the country’s fi rst hydropower project, the 366 MW Chhukha HEP,

in 1988. During the sixth Five Year Plan (1987-1992)43, a signifi cant portion of the national budget

was apportioned towards power projects. In that period, the Bhutanese government installed seven

mini-hydropower plants, twelve micro-hydropower plants and eight diesel generation sets. Domes-

tic consumption was lesser than 16 MW with industry as the primary consumer. With the commis-

sioning of the Kurichhu and Basochhu I projects, electrifi cation rose to 20 per cent in 2003 and

Bhutan swiftly achieved 97 per cent grid-based electrifi cation44 in 2014.

40 Status of hydropower dams in Bhutan. April 2015. Interna onal Rivers.41 Bhutan: Economy, Corrup on and other Issues. Dr. S. Chandrasekharan. 10 March 2015. South Asia Analysis Group. www.

southasiaanalysis.org/node/173342 Bhutan: Energy Sector – Evalua on Study. August 2010. Asian Development Bank. 43 Sixth Five Year Plan of Bhutan. www.gnhc.gov.bt/wp-content/uploads/2011/04/06fyp.pdf44 Bhutan: Country Snapshots. March 2014. World Bank.

15

Peak domestic consumption of electricity is approximately 300 MW at present and 99 per cent of

this requirement is met from hydropower45. The government has succeeded in extending grids even

to remote hilltops and in places where this has not been achieved, solar off-grid and decentral-

ized diesel generation supplement the main grid. Power cuts, blackouts and load shedding are not

common. However, metering and billing continues to be human resource intensive owing to the

distance between houses and villages.

In 2002, Bhutan deregulated its energy sector, which was until then overseen by the Ministry of

Trade and Industry, and created the Department of Energy (DoE), Bhutan Electricity Authority (BEA)

and Bhutan Power Corporation Limited (BPCL). The three bodies function under the ambit of the

Ministry of Economic Affairs (MoEA). While the Department formulates energy policies and conducts

planning and coordination, the Authority is the main regulatory agency of the energy sector and

BPCL is in-charge of distribution and transmission of electricity. PTC India Limited (formerly Power

Trading Corporation of India) facilitates export of power to India.

In 2008, the Government of Bhutan incorporated the Druk Green Power Company (DGPC) as a

holding company to “promote, develop and manage renewable energy projects, particularly hydro-

power, in an effi cient, responsible and sustainable manner, and to maximize wealth and revenue of

the nation’’. The government handed over the Chhukha Hydro Power Corporation, Basochhu Hydro

Power Corporation, and Kurichhu Hydro Power Corporation to DGPC. Both BPCL and DGPC are

owned by the government-owned Druk Holding and Investments, which exercises oversight in the

investment and development of power companies.

While Bhutan’s annual electricity generation is much more than its needs, it faces shortages during

winter46. This is because river fl ows go down in this season, impacting generation. In the months of

October to March, Bhutan imports electricity from India. The peak demand from southern Bhutan is

in summer months and the peak demand from northern Bhutan is in winter months. The average

consumption peak is from November to February and the generation peak is from June to Sep-

tember. On an average47, an urban household today consumes 200 units of electricity in summer

months and 800 units in winter and a rural household consumes 50 units in summer and 180 units

in winter months.

The royalty collected from export of electricity subsidizes domestic electricity. The cost of electricity

for urban consumers, domestic consumers and commercial consumers is the same as long as the

demand is lesser than 300 units. The current policy48 in Bhutan mandates that the fi rst 100 units

to rural consumers be provided free of cost. Urban consumers49 are charged Rs. 1.28 per unit for

consumption of less than 100 units. Rural and urban consumers are charged Rs. 2.45 per unit for

consumption of units between 101 and 300 and Rs. 3.23 per unit for consumption of more than

300 units. Low voltage (LV) commercial consumers who consume more than 300 units per month

are charged Rs. 3.68 per unit. Medium voltage (MV) commercial consumers who consume between

3 and 10 MW per month are charged Rs. 2.35 per unit. High voltage (HV) commercial consumers

who consume more than 10 MW of electricity per month are charged Rs. 1.96 per unit.

45 Green power for Bhutan clean energy crosses borders to reach poor households. 2014. Asian Development Bank. 46 Sector Assessment: Energy. 2012-13. Asian Development Bank. 47 Data provided to the researcher by Bhutan power corpora on limited (BPCL), Bhutan. 48 Revised domes c power rates announced. 14 October 2013. Kuensel. www.kuenselonline.com/archive/revised-domes c-power-rates-announced/49 Data provided to the researcher by Na onal Load Despatch Centre (NDLC), Bhutan.

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Table 4 NLDC’s Record of Electricity Generated on 23 July 2015

Power Plant Electricity Genera on

Chhukha HEP 366.3 MW

Kurichhu HEP 66 MW

Basochhu I HEP 36.6 MW

Basochhu II HEP 22.1 MW

Tala HEP 1115.1 MW

Dagachhu HEP 90 MW

Source: Compiled by Vasudha Foundation on the basis of data provided by NDLC

In 2014, Bhutan consumed 2004 million units – 1495 by HV industries, 90 by MV industries, 67 by

LV consumers, 127 by urban domestic and 84 by rural domestic. The peak consumption in 2014

was 333 MW on 25 December, when generation was 280 MW. According to data from the National

Load Dispatch Centre (NLDC), as on 23 July 2015, actual generation was 1682.5 MW and actual

export was 1448.63 MW.

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SECTION FOUR

4.1 Introduction to Case Study Projects

The study selected the six hydroelectric projects of Chhukha, Kurichhu, Tala, Punatsangchhu I, Pu-

natsangchhu II, and Mangdechhu as case studies for detailed analysis. Chhukha, Kurichhu and Tala

HEPs have been completed with assistance from India while Punatsangchhu I, Mangdechhu and

Punatsangchhu II HEPs are projects under construction with assistance from India.

4.2 Chhukha HEP STATUS: COMMISSIONED IN 1988

The 336 MW run-of-the-river (RoR) Chhukha HEP, built on River Wangchhu in Chhukha district, is the

oldest hydropower plant50 in Bhutan. The agreement for the development of the 336 MW Chhukha

run-of-the-river HEP was signed in 1974, with an energy buy back arrangement for 99 years. The

Chhukha Hydel Project Authority (CHPA) was formed in 197551 and entrusted with the responsibility

of constructing and commissioning of the project. The National Hydro Power Corporation (NHPC),

Geological Survey of India (GSI) and Central Water and Power Commission of India (CWPC) provided

their expertise to the project. Bharat Heavy Electrical Limited (BHEL) supplied the electro-mechanical

machinery and the civil works contracts were awarded to three Indian companies – Patel Engineer-

ing, National Projects Construction Corporation Limited (NPCC) and Aban.

The GoI funded this project with a 60 per cent grant and a 40 per cent loan at the interest rate of

5 per cent payable over a period of 15 years after commissioning. The project was completed at a

cost of Rs. 246 Cr52, increased from the originally sanctioned cost of Rs. 83 Cr. The entire loan has

been repaid by the RGoB as of December 2007.

The Chhukha Hydro Power Corporation Limited (CHPC) was formed in July 1991 under the 1989

Company’s Act of Bhutan to operate and maintain the hydroelectric power plant and the transmis-

sion system and to export surplus power to India after meeting domestic requirement. With the

formation of the Druk Green Power Corporation (DGPC) in 2008, CHPC became an operational unit

of DGPC.

Initially, almost 90 per cent of the power from CHPC was exported to India. In the early 2000s, the

rise in domestic demand brought down CHPC’s export to India to about 81 per cent. However,

with the commissioning of the Tala Hydroelectric Project in 2006, major share of domestic demand

is met by Tala and CHPC became the bulk exporter. In 2013, the export tariff for electricity from

CHPC was revised from Rs. 2 to Rs. 2.25 per unit. The project has been earning revenue for Bhutan

through export of electricity to India and contributes signifi cantly to the internal revenue generation

of the RGoB. The CHPC currently employs 510 people.

50 Project Profi le of Chhukha Hydroelectric Project. Druk Green Power Corpora on.www.drukgreen.bt/index.php/chp-menu/about-chp

51 Interna onal Trade in Energy: The Chhukha Hydroelectric Project in Bhutan. November 1991. D.N.S. Dhakal and Glenn P. Jenkins.Harvard Ins tute for Interna onal Development.

52 Project profi le of Chhukha Hydropower Project. Indian Embassy, Thimphu. www.indianembassythimphu.bt/pages.php?id=35

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4.3 Kurichhu HEP STATUS: COMMISSIONED IN 2002

Figure 4 Kurichhu Hydropower Dam Reservoir

The 60 MW reservoir-based Kurichhu HEP is built on River Kurichhu, a tributary of River Manas, in

Mongar district. The Government of India and the Royal Government of Bhutan entered into an

Agreement in 199453 to construct the project. The Government of India fi nanced the project with a

60 per cent grant and a 40 per cent loan, repayable over a period of 12 years at an interest rate of

10.75 per cent. The project cost at the time of the agreement was Rs. 313 Cr54 which escalated to

Rs. 564 Cr by the time the project was completed. More than 60 per cent of the power produced

is exported to India at the rate of Rs. 1.98 per unit. In 2008, the two governments agreed to peg

Kurichhu’s export tariff to Tala’s export tariff, meaning that a revision in the power tariff of Tala will

be automatically effective for power exported from Kurichhu.

The Kurichhu Project Authority was established to control and monitor the construction work and

to arrange funds for the construction. WAPCOS India was appointed as the engineering design

consultant. The Authority entered into an agreement with the National Hydroelectric Power Corpo-

ration Limited, (NHPC), who in turn entered into agreements with Asian Techs Limited, Hindustan

Construction Company (HCC), Gammon India Limited and Bharat Heavy Electricals Limited (BHEL)

for carrying out civil works and erection of electro-mechanical equipment.

The Kurichhu Hydro Power Corporation Limited (KHPC) formed to operate and maintain the hydro-

electric power plant, the transmission system and to export surplus power to India was amalgam-

53 Project Profi le of Kurichhu Hydroelectric Project. Druk Green Power Corpora on. www.drukgreen.bt/index.php/khp-menu/about-khp

54 Project profi le of Kurichhu Hydropower Project. Indian Embassy, Thimphu. www.indianembassythimphu.bt/pages.php?id=35

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ated into the DGPC in 2008. The Kurichhu Hydropower Project currently employs 201 workers, who

are predominantly Bhutanese citizens.

4.4 Tala HEP STATUS: COMMISSIONED IN 2006

The 1020 MW run-of-the-river (RoR) Tala HEP is located downstream of Chhukha HEP on River

Wangchhu in Chhukha district. The Agreement55 for the implementation of the Tala HEP was signed

by the two governments on 05 March 1996, following which an autonomous body named the Tala

Hydroelectric Project Authority (THPA) was constituted for the construction, operation, and mainte-

nance of the Project.

The original date of completion for the project was December 2004, however owing to delay in

completing construction work, the fi rst unit of the project was commissioned in July 2006 and the

project was fully commissioned in March 2007. The Tala project was fi nanced by India with a 60

per cent grant and 40 per cent loan at 9 per cent interest rate repayable in 12 years. The project

cost as estimated in the DPR was Rs. 1,400 Cr and the project completed in 2007 at a cost of Rs.

4,126 Cr56. Export tariff for electricity from the Tala HEP is Rs. 1.80 per unit.

WAPCOS India was appointed as the engineering design consultant to conduct feasibility study

and detailed project report. The contract for supplying main plant machinery and equipment was

awarded to Bharat Heavy Electricals Limited. Civil works contracts were awarded to Hindustan Con-

struction Company (HCC), Larsen and Toubro (L&T) and Jaiprakash Associates Limited.

A total of 855 acres of land was acquired for the project, of which 49.73 per cent (approximately

425 acres) was forested land, 47.93 per cent was agricultural land and the rest comprised of water

bodies and waste lands. The Tala Hydropower Project currently employs 688 workers, who are

predominantly Bhutanese citizens.

The project site lies in high landslide and fl ash fl oods prone area. In August 2000, heavy down-

pour of rain severely affected the project area, washed away work and camp sites and cut off

roads, bridges and communication channels. Eight of the 1000-odd workers at the project site lost

their lives to landslides and river currents. The Indian Air Force air dropped food and medicines to

stranded workers.

The Tala hydropower project’s application57 for receiving Certifi ed Emission Reduction (CER) credits

from the UNFCCC is currently under validation. The California-based International Rivers and the

New Delhi-based South Asia Network on Dams, Rivers & People (SANDARP) have argued58 against

the approval of CDM credits for the Tala HEP. They opine that the project was completed before

the application was made to the UNFCCC indicating that the project did not “require” CDM credits.

SANDARP’s comments also exposed blatant lies made by the project authorities in its application to

the UNFCCC. The project authority has claimed that there was no alternative to the Tala HEP in India

or Bhutan; that there are no other hydropower projects in Bhutan even while Chhukha, Kurichhu

and Basochhu HEPs were in operation; that India does not have hydropower projects of the size of

the 1020 MW Tala HEP despite the 1350 MW Bhakhra project, the 1500 MW Nathpa Jhakhri project,

55 Project Profi le of Tala Hydroelectric Project. Druk Green Power Corpora on. www.drukgreen.bt/index.php/thp-menu/about-thp

56 Project profi le of Tala Hydropower Project. Indian Embassy, Thimphu. www.indianembassythimphu.bt/pages.php?id=3557 Project Design Document submi ed by Tala Project Authority for CDM Credits to UNFCCC.58 Comments on proposed CDM credits for Tala Hydroelectric project in Bhutan. January 2008. South Asia Network on Dams,

Rivers and People. Comments on CDM Project Design Document for Tala Dam, Bhutan. January 2008. Interna onal Rivers.

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the 1450 MW Sardar Sarovar project, the 1000 MW Tehri project and the 1000 MW Koyna project

currently operating in India. The application is still under review by the UNFCCC.

4.5 Punatsangchhu I HEP STATUS: UNDER CONSTRUCTION

The 1200 MW run-of-the-river (RoR) Punatsangchhu I HEP, located on the River Punatsangchhu in

the western district of Wangdue Phodrang, is the largest such project undertaken in Bhutan. The

agreement between the Government of India and Royal government of Bhutan for implementa-

tion of the Punatsangchhu I HEP was signed on 28 July 2007. The project is being implemented by

the Punatsangchhu I Hydroelectric Project Authority (PHPA I), constituted jointly by GoI and RGoB.

Punatsangchhu I is being funded by the GoI59 with a grant-loan ratio of 40:60, wherein the loan is

given at an interest rate of 10 per cent per annum, repayable over a period of 12 years. The project

cost has seen an enormous escalation from the original estimation of Rs. 3,815 Cr in 2006 to Rs.

9396 Cr in 2015. The project with a lifespan of 35 years will provide domestic electricity to Bhutan

and export the surplus to India. Once commissioned, the project will pay an annual royalty of 12

per cent to RGoB for the fi rst 12 years and 18 per cent for the next 22 years.

The project involves a 137 m high and 279 m wide concrete diversion dam across the River Pu-

natsangchhu, an intake with desilting chamber, a water conductor system, an underground power

house and transmission lines for evacuating power to India. Water diverted from the dam would be

let through two diversion tunnels and the Head Race Tunnel (HRT) to an underground powerhouse.

The Detailed Project Report (DPR) was carried out by the engineering design consultant, WAPCOS

India, and the civil works contractors on the project are Larsen & Toubro (L&T), Gammon India

and Hindustan Construction Company (HCC). The contract for supplying main plant machinery and

equipment was awarded to Bharat Heavy Electricals Limited. The expertise of Indian bodies such as

Geological Survey of India (GSI), Central Water Commission (CWC), Central Water & Power Research

Station (CWPRS), Central Soil & Materials Research Station (CSMRS) and Survey of India (SoI) are

provided to the project through WAPCOS.

The total land requirement for the project is 757 acres, out of which 673 acres are Government

Reserve Forests (GRF) and 78 acres are private land from 116 landowners. The Project Design

Document (PDD) submitted to UNFCCC for Clean Development Mechanism (CDM) credit however,

mentions an additional acquisition of 1456.35 ha of forestland.

According to the project’s PDD60, the environmental concerns from the project include degradation

of forests, disturbance to wildlife, increased erosion due to quarrying operations, increased inci-

dence of water related diseases, generation of solid wastefrom labour camps, generation of muck

from construction activity, dust pollution from construction activities, discharge of effl uents with

high suspended solid from tunnel and decreased environmental fl ow of the river.

The high altitudes and diffi cult terrain of the project’s location can potentially expose it to geological

risks of landslides and fl oods that might even impede the development and functioning of the proj-

ect itself. The UNDP has in fact identifi ed the Punatsangchhu valley as one of the two most Glacial

Lake Outburst Flood (GLOF) vulnerable areas61 in Bhutan. The Punatsangchhu HEPs face the highest

risk of GLOF as 13 out of 25 potentially dangerous glacial lakes are located in the river basin.

59 Project profi le of Punatsangchhu 1 Hydropower Project. Indian Embassy, Thimphu. www.indianembassythimphu.bt/pages.php?id=37

60 Project Design Document submi ed by Punatsangchhu I Project Authority for CDM Credits to UNFCCC. July 2013.61 Project Design Document submi ed by Punatsangchhu I Project Authority for CDM Credits to UNFCCC. July 2013.

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The project’s commissioning has been delayed due to geological, climatic and technical challenges

and date of commissioning has been delayed from 2015 to 2019. Following unprecedented fl oods

in 2009 which delayed construction activities by a year, the project authority decided to relocate the

dam upstream to another site on River Punatsangchhu. The rationale for the relocation was that it

allowed the augmentation of the project’s generation capacity from 1095 MW to 1200 MW. A recent

joint report by the Comptroller and Auditor General of India (CAG) and the Royal Audit Authority of

Bhutan (RAA) indicated major problems in the implementation of Punatsangchhu I HEP. According

to the report, the Geological Survey of India (GSI) had indicated that there might be “geological sur-

prises” in the new dam site, but the project was awarded to Larsen & Toubro (L&T) without further

investigation. Construction of the dam began before GSI submitted its fi nal investigation report,

which indicated that the right bank contained clay and was not feasible for construction of dam.

Subsequently, the right bank at the new dam site began sliding down during construction. Reme-

dial measures have led to further delay and additional costs.

The Punatsangchhu I project has been approved by the UNFCCC for receiving Certifi ed Emission

Reduction (CER) credits.

4.6 Mangdechhu HEP STATUS: UNDER CONSTRUCTION

Figure 5 Mangdechhu Hydropower Project Site

The 720 MW run-of-the-river (RoR) hydropower project is situated on the River Mangdechhu, a trib-

utary of River Manas, in Trongsa district. The agreement between Government of India and Royal

government of Bhutan for implementation of the Mangdechhu Hydroelectric Project was signed on

30 April 2010. The project is being implemented by the Mangdechhu Hydroelectric Project Author-

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ity (MHPA), constituted jointly by the GoI and the RGoB. The scheduled date of commissioning the

project is 2017.

The project was approved with an estimated cost of Rs. 3382 Cr but has seen an escalation bringing

it up to Rs. 4500 Cr. The project is built with a grant-loan ratio of 30:70 at 10 per cent interest rate

within a 12 year repayment period. The project with a lifespan of 35 years will provide domestic

electricity to Bhutan and export the surplus to India. Once commissioned, the project will pay an an-

nual royalty of 12 per cent to RGoB for the fi rst 12 years and 18 per cent for the next 22 years.

The project involves the construction62 of a 56 m high concrete dam, diversion tunnel, spillway, 2

intake tunnels, 2 de-silting chambers, a 13.5 km long headrace tunnel, underground power house

and transmission lines for evacuating power to India. The National Hydro Power Corporation of In-

dia (NHPC) was roped in as the engineering design consultant; civil works contracts were awarded

to Jaiprakash Associates and Gammon India. Bharat Heavy Electrical Limited (BHEL) was awarded

the contract to provide electro-mechanical equipment for the project. The scope of the contract in-

cludes the manufacture, supply, erection and commissioning of four Pelton turbines and generators,

control system and other auxiliary equipment.

The total land acquired for the project is 803 acres, out of which 733 acres are Government Reserve

Forests, and 70 acres are private lands belonging to 49 households. Ten families lost both home-

stead and agricultural lands.

The Mangdechhu project has applied63 with the UNFCCC for receiving Certifi ed Emission Reduction

(CER) credits and its application is currently under validation.

4.7 Punatsangchhu II HEP STATUS: UNDER CONSTRUCTION

The 1020 MW Punatsangchhu II is a run-of-the-river (RoR) hydropower project situated on the

right bank of River Punatsangchhu in the western district of Wangdue Phodrang. The Agreement

between Government of India and Royal government of Bhutan for implementation of the Punat-

sangchhu II project was signed on 30 April 2010. The project is being implemented by the Punat-

sangchhu II Hydroelectric Project Authority (PHPA II), constituted jointly by the GoI and the RGoB.

The project was scheduled to be completed in 2017; however owing to delays the date of comple-

tion has been pushed to 2018.

The Punatsangchhu II was sanctioned in 2010 with a project cost of Rs. 3,778 Cr. Unlike Punat-

sangchhu I, which received a 40 per cent grant and 60 per cent loan from the Government of India,

Punatsangchhu II is built with a 30 per cent grant64 and 70 per cent loan with an interest rate of

10 per cent and a 12 year repayment period. As of 2015, the project cost for Punatsangchhu II has

escalated to Rs. 7,435 Cr. The project with a life span of 35 years will provide domestic electricity

to Bhutan and export the surplus to India at tariff of Rs. 2.18 Nu per unit. Once commissioned; the

project will pay an annual royalty of 12 per cent to RGoB for the fi rst 12 years and 18 per cent for

the next 22 years.

The project involves a 86 m high wide concrete diversion dam across the River Punatsangchhu, an

intake with de-silting chamber, a water conductor system, an underground power house and trans-

mission lines for evacuating power to India. WAPCOS Limited, the engineering design consultant

62 Project profi le of Mangdechhu Hydropower Project. Mangdechhu Hydroelectric Project Authority. www.mhpa.gov.bt/63 Project Design Document submi ed by Mangdechhu Project Authority for CDM Credits to UNFCCC. May 2014.64 Project profi le of Punatsangchhu II Hydropower Project. Indian Embassy, h p://www.indianembassythimphu.bt/pages.

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for the project, prepared the Detailed Project Report (DPR). The expertise of Indian bodies such as

Geological Survey of India (GSI), Central Water Commission (CWC), Central Water & Power Research

Station (CWPRS), Central Soil & Materials Research Station (CSMRS) and Survey of India (SoI) are

provided to the project through WAPCOS. The contracts for carrying out main civil works for the

project were awarded to Jaiprakash Associates and Gammon India. The contract for supplying main

plant machinery and equipment was awarded to Bharat Heavy Electricals (BHEL).

A total of 556 acres of land was acquired for this project comprising 479 acres of Government

Reserve Forests, 32 acres of private land, including 20 acres of wetlands, and 5 acres of institutional

land. The 14 acres of private land were acquired from 19 landowners. Eighteen families lost both

homestead and agricultural lands.

The environmental concerns and potential risks mentioned for Punatsangchhu I project are ap-

plicable for the Punatsangchhu II project as well, as the two projects are located on the same river.

The Punatsangchhu II project has applied65 for receiving Certifi ed Emission Reduction (CER) credits

and its application is currently under validation with the UNFCCC.

65 Project Design Document submi ed by Punatsangchhu II Project Authority for CDM Credits to UNFCCC. May 2014.

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SECTION FIVE

Note: This section is a refl ection of our analysis from the desk research and our meetings with

various stakeholders, namely representatives from various departments and ministries of the Royal

Government of Bhutan, Civil Society Groups and Think Tanks with specifi c focus on Environment

and Development, journalists, and community members from various project locations. Amongst the

representatives of the Government of Bhutan, include members of the National Council (Parliament).

The analysis in this section is thematically presented and includes views of multiple stakeholders.

Therefore, it would be diffi cult to present the views of the various stakeholders separately. However,

it must be noted here that, the analysis is primarily based on community views, and refl ects the

fi ndings from the various focused group discussions.

For more details, please do refer back to the methodology section and also the section 5.5 for the

focused group discussion schedule details.

5.1 Implications of Modality of Agreements

The governments of India and Bhutan have customarily reiterated that the key undertone to their

relationship is mutual benefi t. To ascertain that both countries and their citizens benefi t equally

within the framework of friendship established by both states, it is necessary to critically review the

modalities of the friendship arrangement, which are translated into cooperation agreements, and

the various implications of hydropower projects on the economy, environment, people, livelihoods

and culture of Bhutan.

A step in that direction immediately reveals a conspicuous lack of access to essentially basic

information relating to the agreements signed by the two countries and the hydropower projects

executed under the agreements. The agreements for execution of particular projects are not public

documents and there is minimal disclosure on hydropower projects implemented under the India-

Bhutan energy cooperation agreement. The feasibility studies, Detailed Project Reports (DPR), EIA,

SIA, Resettlement & Rehabilitation plans (R&R), compliance monitoring reports and other such

documents are not made publicly available, obstructing genuine appraisal of already implemented

projects. This continues to be the case for projects under construction and the many more in the

pipeline, despite the fact that Bhutanese policies framed in the early 2000s require that documents

such as EIA, SIA and R&R be in public domain.

Bhutan has so far not implemented hydropower projects independent of external assistance. So,

the only comparison of projects is between those implemented with assistance from India and

those implemented with assistance from others. There are three projects implemented or planned

in Bhutan with assistance from sources other than India – Basochhu I & Basochhu II HEPs commis-

sioned in 2001 & 2005 with assistance from Austria, Dagachhu HEP commissioned in 2015 with

assistance from Austria, Japan and Asian Development Bank (ADB) and Nikachhu HEP which is to

be commissioned in 2020 with assistance from the Asian Development Bank. A signifi cant amount

of information for two out of the three projects, the Dagachhu HEP and Nikachhu HEP, is publicly

available. They include project administration memorandum66, loan documents67, resettlement

66 Project Administra on Memorandum for Nikachhu Project. www.adb.org/sites/default/fi les/project-document/153065/44444-013-pam.pdf67 Proposed Loan for Addi onal Financing Kingdom of Bhutan: Green Power Development Project.www.gtai.de/GTAI/Content/DE/Trade/Fachdaten/PRO/2013/10/Anlagen/PRO201310185011.pdf?v=1

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plans68, environment impact assessment69, environmental safeguard compliance assessment70, and

environmental & social monitoring report71.

However, similar information is not available for even a single project (whether completed, under

construction or under planning), implemented with assistance from India. Not only are such docu-

ments not proactively placed in public domain by the Government of Bhutan and its Indian coun-

terparts, various Bhutanese authorities approached by the authors of this report refused to provide

them even while acknowledging that Bhutanese law mandates public disclosure of the same.

Similarly, Right to Information applications72 made to Indian authorities such as Ministry of Environ-

ment, Forests & Climate Change, Ministry of Power, Ministry of New & Renewable Energy, Central

Electricity Authority and Ministry of External Affairs yielded no information.

Bhutan’s diplomatic relations with India and the consequent implementation of hydropower

projects are considered politically sensitive within the country and this excessive sensitivity could

potentially prevent critical information regarding adverse impacts of projects from reaching its

citizens. Juxtaposing this information black out with documented evidence of negative impacts of

several projects on the local ecology suggests that the ‘political sensitivity’ is allowing for leeway to

implement projects without adequate assessment of impacts and mitigation plans.

While the modalities of the agreements are not in public domain, Bhutanese citizens are starting to

feel that the amount of control with each country in implementation of projects is skewed in favor

of India. The Board of the Project Authorities comprises a Chairman, four Members nominated by

the Royal Government of Bhutan and three Members nominated by the Government of India. The

Project Management is headed by the Managing Director, supported by a Joint Managing Director, a

Director (Technical) and a Director (Finance). The Managing Director is also the Ex-Offi cio Secretary

to the Authority. In the case of the Punatsangchhu I Project Authority, as per the signed agreement,

the Managing Director, Director Finance and Director Technical are Indian citizens while the Joint

Managing Director is a Bhutanese citizen. Likewise, the Mangdechhu Project Authority73 also has

Indian citizens in the positions of Managing Director, Director Finance and Director Technical and

a Bhutanese citizen as the Joint Managing Director. This supports the claim within Bhutan that hy-

dropower projects implemented with assistance from India largely have Indians in decision-making

positions.

Furthermore, the planning, designing and management of projects, implemented under the India-

Bhutan energy cooperation agreement, and all major construction and supply contracts are handled

by Indian agencies. Indian companies provide feasibility reports, Detailed Project Reports (DPR) and

engineering design specifi cations. Similarly, Indian companies are contracted to carry out impact as-

sessments and other relevant studies. In some cases, even after the implementation of the projects,

major technical responsibilities are handled through a team of Indian engineers and experts.

68 Dra Rese lement Plan for Nikachhu Project. www.adb.org/sites/default/fi les/project-document/81685/44444-013-rp-01.pdf69 Environmental Impact Assessment for Dagachhu Project. www.interna onalrivers.org/fi les/a ached-fi les/bhutan_dagachhu_eia.pdf Environmental Impact Assessment for Nikachhu Project. www.adb.org/sites/default/fi les/project-document/81680/44444-013-eia-01.pdf70 Environmental safeguard compliance assessment for Dagachhu Project. www.adb.org/sites/default/fi les/linked-

documents/37399-043-bhu-sd-02.pdf71 Environmental & social monitoring repor or Dagachhu Project. www.adb.org/sites/default/fi les/project-document/148817/37399-043-esmr-01.pdf72 Researchers of this study made applica ons under the Right to Informa on Act, 2015 to the above men oned public

authori es in India on 31 July 2015.73 Personnel of the Mangdechhu Hydroelectric Project Authority www.mhpa.gov.bt/management.php?mid=1

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Source: Compiled by Vasudha Foundation based on information from offi cial websites of Druk Green Power

Corporation and Embassy of India in Thimphu

The quality of work of the consultants and contractors employed by the project authorities has also

come into question. The South Asia Network on Dams, Rivers and People (SANDRP) contended that

the Tala Project Authority “neither appraised the hydrological issues adequately, nor did they take

adequate precaution to ensure minimum damages in seasons that are known to be high monsoon

rains and fl ood seasons”74. Heavy rains and fl oods in August 2000 gravely affected the project area

and resulted in the deaths of eight workers. SANDRP exposed false claims made by the Project Au-

thority that construction work was paused during monsoons, as the effects of the August 2000 rains

on the project and its workers demonstrate otherwise.

The project authority of the Punatsangchhu I HEP has alluded the slow pace of work and the inor-

dinate delay in completing construction work to ‘geological surprises’ relating to the sinking right

bank of the dam site. The dam was re-located by the project authority in 2009 to increase the gen-

eration capacity of the project from 1095 MW to 1200 MW. A joint audit75 conducted by the Royal

Audit Authority (RAA) of Bhutan and the Comptroller General Audit of India (CAG) shows that the

Punatsangchhu Hydroelectric Project Authority (PHPA), the project’s engineering design consultant

WAPCOS and Central Water Commission of India (CWC) knew that there were geological weakness-

es at the relocation site but still went ahead and approved the tendering of the dam on the same

site. Geological Survey of India’s (GSI) geo-technical appraisal report had identifi ed weak geological

features at the new dam site and pointed out that this may entail additional cost. The GSI appraisal

report also said that additional investigations were required for the exact delineation of the weak

geological features. However, instead of conducting further investigations as required by proce-

dure, WAPCOS issued a clearance for the project dam bids to be opened on 16 February 2009. Civil

contract for construction work was awarded to Larsen and Toubro on 27 March 2009. Subsequent

investigations by GSI76 showed adverse geological conditions in the right bank of the new dam

74 Comments about the proposed CDM credits for The Tala Hydroelectric project in Bhutan and Export of hydropower there from to India. 19 January 2008. South Asia Network on Dams, Rivers and People.

www.sandrp.in/hydropower/SANDRP_Comments_Tala_Hydro_CDM_Valida onJan08.pdf75 Losing the Dragon — India-Bhutan rela ons one year a er Modi’s historic visit. 17 October 2015. The Hindu. www.the-

hindu.com/opinion/op-ed/prime-minister-narendra-modis-historic-visit-to-bhutan/ar cle7480714.ece76 RAA Report Shows Nu 3.5 Bn Extra Cost And Time Delay For P-I Sinking Zone Could Have Been Avoided. 15 June 2015. The

Bhutanese. www.web.archive.org/web/20150724124652/h p://www.thebhutanese.bt/raa-report-shows-nu-3-5-bn-extra-cost-and-

me-delay-for-p-i-sinking-zone-could-have-been-avoided/

Table 5 Contracts Awarded for the Hydropower Projects Under Construction

Project Engineering & Design Consultant - Main Plant

Civil Works Contracts(civil works are divided into por ons)

E&M Works Contract

Engineering & Design Consult-ant - Transmis-sion Line

Transmission Works Contracts

C1 C2 C3

Punatsa-ngchhu I

WAPCOS (India)

Larsen & Toubro (India)

Gammon (India)

Hindustan Construc on Company (India)

BHEL (India), Hyosun (South Korea) & Sudkabel (Germany)

Power Grid (India)

Jyo Structures (India) & Gam-mon (India)

Punatsa-ngchhu II

WAPCOS (India)

Jaiprakash Associates (India)

Gammon (India)

Jaiprakash Associates (India)

BHEL (India), Hyosun (South Korea) & L.S. Cables (South Korea)

Power Grid (India)

KEC Interna onal (India)

Mangd-echhu

NHPC (India) Jaiprakash Associates (India)

Gammon (India)

Jaiprakash Associates (India) &PES Engineering (India)

BHEL (India) & ALSTOM T&D (India)

WAPCOS (India) & CEA (India)

Kalpataru Power(India)

27

location. The GSI report said that examination of cores of the bore hill drilled on the right bank re-

vealed the presence of a number of shear, fracture, faults zones represented by nil to very poor core

recovery with occasional clay gouge. It was concluded that the right bank is riddled with a number

of shears and fractures. The Punatsangchhu I HEP now faces inordinate delay in completing work

and enormous escalation in project cost.

Over the last 40 years, the private sector in Bhutan has advanced only marginally. The participation

of Bhutanese private sector in hydropower development is primarily through small subcontracts

in civil works such as supplying of boulders and sand. The private sector has not been given the

opportunity to develop and this has created a situation where expertise, capacity and human re-

source within Bhutan are in short supply. The Bhutan Chamber of Commerce & Industry (BCCI) has

asserted that the Bhutanese private sector has not reaped the benefi ts of hydropower development

and has advocated for local companies to be given a greater role in hydropower development. A

2013 news article77 reported that Ugen Tsechup Dorji, President of BCCI, “held a grudge against the

monopoly of Indian companies and workers in the hydropower sector”. The BCCI has argued that

work that can be done by Bhutanese companies should be contracted to them with India transfer-

ring the knowhow.

It is often repeated that Bhutan does not have the local capacity to independently carry out work

for the large-scale hydropower projects. But hydropower projects implemented in Bhutan with

assistance from ADB and the Government of Austria have employed local Bhutanese agencies,

companies and organizations to carry out different kinds of work. For instance, Bhutanese compa-

nies carried out civil construction work for the Basochhu HEP and Bhutan Consultancy & Research

(BHUCORE) carried out the EIA studies for Nikachhu HEP and Dagachhu HEP. Having said this, the

scale of the projects implemented under the India-Bhutan Cooperation Agreement is much larger

than that of projects such as Basochhu, Dagachhu and Nikachhu. However, unless gradual partici-

pation of local companies and fi rms is encouraged, Bhutan will be unable to generate the technical

know-how, fi nancial and human resources required and will continue to wholly rely on assistance

from India and elsewhere.

5.2 Implications to Economy

The hydropower sector has undoubtedly benefi tted Bhutan’s economy through substantial contri-

butions to the national revenue and by providing the much-needed boost to kick-start the indus-

try and service sector. The sector’s fi nancial performance has however seen deterioration in the

previous decade, indicating that its commercial profi tability cannot be taken for granted. Economic

analysis has revealed that the net profi t per unit of electricity sold has fallen sharply since 2007. De-

spite the increase in electricity generation capacity, the sector’s contribution to the real GDP growth

has seen a continual decline78; from 12.2 per cent in 2007 to (1.1) per cent in 2011 to 1.8 per cent in

2013 and (0.5) per cent in 2014.

Along with decreasing revenue, Bhutan’s external debt has witnessed a steady rise, causing much

concern within the country. According to the 2013-14 Annual Report of the Royal Monetary Author-

ity (RMA), Bhutan’s outstanding external debt has increased by 9.5 per cent to Rs. 11,621.5 Cr. The

standalone debt of the hydropower sector alone was Rs. 6,787 Cr.

77 Bhutan’s Experiments with Happiness. October 2013. Down to Earth. www.downtoearth.org.in/coverage/bhutans-experi-ments-with--happiness-42467

78 Annual Report of the Royal Monetary Authority. 2014-15. Royal Government of Bhutan. www.rma.org.bt/annualrepor p.jsp

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Table 6 Economic Indicators for Bhutan

Economic Indicator 2010 2011 2012 2013 2014

GDP Growth Rate(in percentage)

11.7 7.9 5.1 2.1 5.4

RGoB’s External Debt(InUSD Million)

1289.3 1333.7 1606.8 1759.0 1854.6

RGoB’s Debt to India(In Rs. Crores)

3406.23 4555.09 6134.17 6787.02 8118.36

Source: 2014-15 Annual Report of Royal Monetary Authority of Bhutan

The RMA reported that as of June 201479, Indian rupee debt constituted 64 per cent of Bhutan’s

total debt and hydropower loans accounted for 83.4 per cent of the total rupee loan. Actual interest

payments on rupee denominated hydropower debt amounted to Rs. 1.4 billion in 2014 and accrued

interest on the three ongoing hydropower projects (Punatsangchhu I, Punatsangchhu II and

Mangdechhu) amounted to almost Rs. 3.6 billion. In December 2014, Bhutan’s total external debt

was 112 per cent of the country’s GDP80. According to World Economic Outlook online database

of the International Monetary Fund (IMF), the percentage of governmental debt as a percentage

of GDP increased to 117.7 per cent in 2015. This data shows that the hydropower sector has

contributed to the steep rise in Bhutan’s external debt. A report called, ‘The New Debt Trap’ by the

Jubilee Debt Campaign, a UK-based company, has categorized Bhutan as a country with ‘high risk

of government debt crises’. The report lists Bhutan as one “among 14 other countries that are fast

heading towards a debt crisis”.

Bhutan’s hydro-power projects have largely been perceived risk-free, and thus rapid hydro-power investment

through heavy borrowing has not caused much concern until recently. Yet available information suggests that the

sector’s fi nancial performance has been deteriorating… Should the hydropower sector’s fi nancial performance con-

tinue to deteriorate, Bhutan’s solvency could be threatened. Although debt service costs are being borne by DGPC at

present, after all, the hydropower debt is the government’s liabilities. The source of the performance deterioration has

to be identifi ed, and, remedial actions taken soon to avoid debt service diffi culties.

Naoko C. Kojo. Small Countries with Volatile Revenue: Botswana and Bhutan.

Economic Policy and Debt Department, World Bank

Bhutan’s trade defi cit, stemming from an imbalance in export and import, is seen as one of the key

reasons for the macroeconomic instability in the country since 2009. Infl ation began to rise marked-

ly, initially driven by food price infl ation imported from India. The infl ation rate reached an all time

high of 13.53 per cent in 2012 and stands at 5.15 per cent in the second quarter of 2015. Bhutan’s

exports of Rs. 3288 Cr compared to imports of Rs. 5530 Cr has created a trade defi cit of Rs. 2242

Cr. Bhutan’s balance of payment touched 21.5 per cent of its GDP in 2013. As a result, the country

faced a severe rupee-crunch in 2012.

Despite the signifi cant increase in electricity exports, the export growth has been unable to keep

pace with growth in imports, particularly imports from India. While consumption-related imports

have grown considerably over the last few years, a signifi cant portion of imports are related to the

construction of new hydropower projects and fuels. Much of the construction supplies for hydro-

power projects are purchased in India by Indian contractors and imported to Bhutan. Even when

goods such as cement, transport trucks, food supply, vegetables and fruits are available in Bhutan,

contractors of various projects have been found to import them from India.

79 Bhutan’s debt increasing at 9.5 per cent, India largest creditor. 29 January 2015. Economic Times. www.ar cles.economic mes.india mes.com/2015-01-29/news/58586541_1_hydropower-rupee-loan-june-201480 Losing the Dragon - India-Bhutan rela ons one year a er Modi’s historic visit. 17 October 2015. The Hindu. www.thehindu.

com/opinion/op-ed/prime-minister-narendra-modis-historic-visit-to-bhutan/ar cle7480714.ece

29

The model of fi nancing hydropower projects under the India-Bhutan energy cooperation agree-

ments has witnessed a trend of reversing the grant-loan ratio. The Indian Government funded the

Chhukha, Kurichhu and Tala HEPs with a grant-loan ratio of 60:40. For the Punatsangchhu I project,

the grant component was reduced to 40 per cent and the loan component increased to 60 per cent.

The grant component for the Punatsangchhu II and Mangdechhu HEPs were further reduced to 30

per cent thereby increasing the loan component to 70 per cent. Likewise, the rate of interest on the

loans sanctioned by the Indian government to Bhutan has increased from just 5 per cent in the case

of Chhukha HEP to 10.75 per cent for Kurichhu and 10 per cent for the Punatsangchhu HEPs and

Mangdechhu HEP. The interest rate on loans provided by the Indian government is also higher than

the interest rates on loans provided by the Austrian government and the Asian Development Bank

(ADB). This reversal of grant-loan ratio will not only increase Bhutan’s debt, but it will also translate

into increased cost per unit of electricity exported to India.

The Chhukha, Kurichhu and Tala HEPs had seen cost escalations during the construction phase and

so are the three projects under construction experiencing escalations of cost. However, the mag-

nitude of cost escalation is the most alarming for the Punatsangchhu I HEP where the project cost

increased from the originally estimated cost of Rs. 3,400 Cr in 2008 to a whopping Rs. 9,700 Cr in

2015. In comparison, the projects funded by the Austrian government and the ADB have either kept

to the original cost or seen much smaller escalations. This poses a serious challenge to the compe-

tence and profi ciency of project authorities in managing projects implemented under the India-

Bhutan energy cooperation agreements.

Table 7 Financial Details of Completed and Under Construction HEPs

Project Name Capacity (MW)

Original Cost (Rs. Cr)

Escalated Cost

Escala on Percentage

Grant: Loan Ra o

Loan Interest (in percentage)

Repayment Period (yrs)

Projects fi nanced by the Indian Government

Chhukha 336 83 246 197 60:40 5 15

Kurichhu 60 313 564 79 60:40 10.75 12

Tala 1,020 1,400 4,126 193 60:40 9 12

Punatsangchhu I 1,200 3,400 9,700 170 40:60 10 12

Mangdechhu 720 2,896 4,500 29 30:70 10 12

Punatsangchhu II 1,020 3,778 7,435 97 30:70 10 12

Projects fi nanced by Austrian Government and the ADB

Basochhu I 24 145 144 None - 6 15

Basochhu II 40 142 182 28 - 6 20

Dagachhu I 126 820 1,296 48 - 9 15

Source: Review of the Sustainable Hydropower Development Policy 2008. 27 May 2014. National Council of Bhutan.

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Figure 6 Original Project Cost versus Escalated Cost

In July 2015,81 a local daily TheBhutanese reported that Tata Power Trading Company (TPTC), which

has a 15 year agreement with the Dagachhu HEP to sell its electricity in India, was facing problems

selling electricity from the HEP at Nu. 2.90. The projected cost of generation at the Punatsangchhu I

has already touched Rs. 4.00 per unit. The project’s completion date has been pushed back to 2019,

meaning the costs could go up further. The enormous increase in project costs severely questions

the fi nancial viability of electricity from this project. Also, the foregone profi t owing to the delay

in completing the Punatsangchhu I HEP is pegged at Rs. 39 billion. The Indian government has

indicated acceptance of additional costs, but given that 60 per cent of the project cost is only a loan

from India, it is Bhutan that will have to bear the brunt of the major share of the losses and repay a

higher amount of interest on loans.

Another cause for concern is that the rupee denoted grants and loans for hydropower development

from India are disbursed directly from the Indian Ministry of External Affairs to hydropower authori-

ties in Bhutan bypassing the national budget, even though the fi nancing agreements stipulate the

Royal Government of Bhutan as the benefi ciary. According to Naoko C. Kojo, “All government fi nan-

cial fl ows need to be integrated into the national budget process to ensure its integrity and protect

its role as the mechanism for setting expenditure priorities and allocating public resources. Fiscal

fl ows, regardless of the objectives and source of funding, should not be entrusted with an extra-

budgetary authority, and all fi scal infl ows and outfl ows should go through the budget.”

5.3 Implications to Ecology

The directives for mega projects planned between India and Bhutan stem from the Ministry of

Economic Affairs in Bhutan rather than through coordinated efforts between various ministries to

ensure that planning factors implications on human and environment life apart from economic

considerations.

For projects implemented under the India-Bhutan energy cooperation agreement, various regula-

tory bodies and departments such as National Environment Commission (NEC), Department of

Forest and Park Services, Ministry of Labour and Human Resources, and Ministry of Works and

81 Tata Power faces low rates and red tape in selling 126 MW Dagachhu Power in India. 25 July 2015. The Bhutanese. h p://4.bp.blogspot.com/-Hkf0Xi5Eiog/V BNT9zUDI/AAAAAAAAHWw/pMSjbnHjNhU/s1600/TheBhutanese.jpg

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Human Settlement, which are empowered to screen and assess projects for environmental, social

and cultural impacts, become involved only after the Government of Bhutan gives its go-ahead by

signing an agreement with India to implement the project.

Available information indicates that pre-feasibility studies are carried out before the two govern-

ments reach an understanding such as the 2006 Umbrella Agreement which includes plans for 10

mega hydropower projects. Then, on the basis of such agreements, feasibility studies and detailed

project reports (DPR) are commissioned. Once the studies discern the project’s technical and

fi nancial viability, the two governments sign an agreement for actual implementation of particular

projects. It is only after signing of this agreement, that the project is screened for environmental and

social impacts. This has reduced regulatory processes, impact analysis, and consents and clearances

from ministries to become inconsequential proceedings.

Since most of the hydropower projects implemented in Bhutan are run-of-the-river (RoR) schemes,

the amount of forest lands diverted to the projects is lesser in relation to reservoir based projects

which submerge greater amounts of land. Of the six projects implemented till date, only the 60 MW

Kurichhu HEP is a reservoir scheme. Having said this, four projects planned under the 2006 Umbrel-

la Agreement– the 180 MW Bunakha HEP, 2560 MW Sunkosh HEP, 2640 MW Kuri-Gongri HEP and

540 MW Amochhu HEP, are large or mega reservoir-based hydropower projects. These four projects,

especially Sunkosh and Kuri-Gongri, are exceptionally large projects and will require large extents

of land.

The Department of Forest and Park Services requires projects to compensate every acre of forest-

land used with 2 acres of afforestation. The forest protection norms do not allow any activity in

areas identifi ed as core zones. An offi cial within the department however implied that they apply

subjective analysis based on ground realities before taking a decision on projects. For example,

underground drilling was permitted in the buffer zone of a reserve park in the case of the Nikachhu

HEP. The construction of transmission lines through reserve forests and protected areas has nega-

tively impacted forest cover and water shed areas.

Environment Impact Assessment (EIA) was not conducted for the Chhukha, Kurichhu and Tala HEPs

as work on the projects began prior to the passing of the Environmental Assessment Act of 2000.

The Project Authorities for Punatsangchhu I, Punatsangchhu II and Mangdechhu HEPs conducted

Environment Impact Assessments, which are however not publicly available. Given the lack of

access to critical information, it is not possible to determine if hydropower projects have been fol-

lowing environmental norms and to what extent they are successful in doing so. But preliminary

information indicates that the environment is taking a backseat in new developments.

EIA studies for projects implemented under the India-Bhutan Cooperation Agreement have been

undertaken by Indian agencies such as WAPCOS India, Guwahati University and the Dehradun

based Forestry Research Institute. The EIA reports completed by WAPCOS for projects in India have

come under severe criticism82 in the past. Indian organizations such as the South Asia Network on

Dams, Rivers and People (SANDARP) have critiqued83 WAPCOS for substandard work, manipulation

of information and underassessment of impacts. Without actually reviewing the EIA reports for the

projects under study in this report, one cannot discuss its quality and standard. However, given the

82 Hydropower in Bhutan - Time for a Rethink? August 2015. Interna onal Rivers. www.interna onalrivers.org/blogs/328-583 Sach Khas Hydro project in Chenab Basin: Another example of WAPCOS’s shoddy EIA. 19 August 2014. SANDRP. www.

sandrp.wordpress.com/2014/08/19/sach-khas-hydro-project-in-chenab-basin-another-example-of-wapcoss-shoddy-eia/ Lohit Basin Study by WAPCOS: A mockery of e-fl ows and cumula ve impacts. SANDRP. www.sandrp.in/rivers/Lohit_Basin_Study_by_WAPCOS_A_mockery_of_e-fl ows_and_cumula ve_impacts.pdf Comments on EIA of Bansujara Mul purpose project in Dhasan basin in MP - Another shoddy EIA by WAPCOS. November

2013. SANDRP. www.sandrp.in/Bansujara_Mul purpose_Nov_2013.pdf Comments on WAPCOS study on eff ect of Hydro peaking of dams on DSNP, December 2011. SANDRP. www.sandrp.in/

hydropower/Comments_on_WAPCOS_study_on_eff ect_of_Hydro_ peaking_of_dams_on_DSNP.pdf/at_download/fi le

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tight veil around the reports, the track record of some of the agencies employed, and the increas-

ing evidence of adverse environmental impacts from projects, there is a growing sense that the EIA

report are poor and do not suffi ciently assess impacts of projects.

Environmental impacts from hydropower projects include loss of forest lands; disturbance to

wildlife habitat; heavy dust pollution from construction work and use of heavy vehicles to transport

construction material and equipment noise pollution due to blasting and tunneling activities; dam-

age to open water bodies such as streams and ponds; and severe stress on water resources in the

region.

Dr. Lam Dorjee of the Centre for Environment and Development, Bhutan stated that, “From what

we see, the environmental standards employed in the Punatsangchhu I project are pretty low. Mega

projects in the least should attempt to not interfere with day to day life of the general public”.

The Punatsangchhu projects are located close to the Dikchhu and Hararongchu (streams), which is

home to a variety of endangered species of fl ora and fauna. The critically endangered White-bellied

Heron (Ardeainsignis) is under threat of extinction in Bhutan due to the development of the Punat-

sangchhu HEPs, which are located in close proximity to their habitat. As per the 2007 International

Union for Conservation of Nature (IUCN) Red List, there are only 200 of the critically endangered

species in the world. The Royal Society for the Protection of Nature (RSPN) initiated captive breed-

ing of the white bellied heron and with fi nancial assistance from the PHPA, RSPN successfully

hatched a chick. In 2013, International Rivers reported that illegal riverbed mining for the construc-

tion of the Punatsangchhu HEP has affected breeding of Ruddy Shelduck. Similar concerns about

construction of Punatsangchhu HEPs affecting breeding and migration of the golden mahseer84

and Deccan mahseer have been voiced. The Mangdechhu project area is home to a rich diversity of

birds, butterfl ies and endangered species such as the golden langur85 and Himalayan black bear.

The Rivers Manas and Punatsangchhu drain into the state of Assam in India and hydropower proj-

ects on both the rivers are expected to have adverse trans-border impacts in the downstream state.

Several studies have predicted a possible threat86 from the Mangdechhu HEP to the Manas National

Park, a UNESCO world heritage site. A part of the national park lies on the Bhutan side of the border

by the name of Royal Manas National Park and the other half, located in the downstream state

of Assam (India), is known as the Manas National Park. This heritage site in Assam has witnessed

major fl ooding87 in the past resulting from the downstream impacts from the Kurichhu HEP.

Most fi sh species in Bhutan are the local migratory kind, which are severely impacted by concrete

dams across rivers. The experience of the implemented hydropower projects reveals adverse

impacts on fi sh migration and fi sh breeding. Experiments of building fi sh ladders at the dam site

to enable fi sh to cross the concrete structures to the other side have not proved successful. The fi sh

ladders constructed at the Kurichhu88 and Dagachhu dams failed to transport fi sh across the dams.

The height of the dam is too high for the fi sh to cross over using a manmade ladder. The designs

for Punatsangchhu I, Mangdechhu and Punatsangchhu II do not even include fi sh ladders.

Affected communities in the case study areas reported that spring waters, which were traditionally

84 Damming Or Damming Rivers? 10 October 2011. Climate Himalaya. www.chimalaya.org/2011/10/10/damming-or-damming-rivers/85 Objec ons and comments on CDM credits for Mangdechhu hydropower project in Bhutan and export of hydropower from

it to India by Mangdechhu Hydroelectric Project Authority. 25 July 2015. Interna onal Rivers. www.interna onalrivers.org/fi les/a ached-fi les/mangdechhu_cdm_comments-714-updated.pdf

86 Poten al impact of large river dams in Eastern Himalaya on World Heritage Sites in Assam: Expression of Concern. Aaran-yak. www.ercindia.org/fi les/Aaranyak%20concern-dams%20&%20WHS%20in%20Assam.pdf

87 Manas could lose its World Heritage Site status again, thanks to dam. 27 October 2011. Asian Correspondent. www.write2kill.in/report/manas-could-lose-its-world-heritage-site-status-again-thanks-to-dams.html

88 Some thoughts on a visit to the fi sh-ladder at Kurichhu hydropower project, Bhutan. January 2014. SANDRP. www.sandrp.in/FishLadder_Kurichhu_Bhutan_Jan_2014.pdf

33

used for household and agricultural purposes, are gradually reducing while surface sources such as

ponds are drying up at rates much faster than recharge of water sources is taking place.

Bhutan does not have specifi c norms and standards to maintain adequate environmental fl ow

of rivers while implementing hydropower projects. Environmental fl ow is a system that manages

the quantity, timing, and quality of water fl owing below a dam, in order to sustain freshwater and

estuarine ecosystems, and the human livelihoods that depend on them. Concurrently, there is a lack

of local expertise to determine environmental fl ow, which has allowed projects with badly designed

environmental fl ows to be implemented. The NEC is currently working to scientifi cally determine

environmental fl ows for its rivers and hopes to have the results in 2017. Nonetheless, impacts of

environmental fl ows in the already implemented projects are alarming.

Figure 7 Landuse Change Map for Chhukha and Tala Hydropower Projects (1978 - 2015)

Figure 8 Landuse Change Map for Kurichhu Hydropower Project (2000-2015)

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Figure 9 Landuse Change Map for Mangdechhu Hydropower Project (2000 - 2015)

Figure 10 Landuse Change Map for Punatsangchhu I and II Hydropower Projects (2000-2015)

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This study conducted a land-use change mapping exercise for the six case study hydropower proj-

ects of Chhukha, Kurichhu, Tala, Punatsangchhu I, Punatsangchhu II and Mangdechhu. The mapping

utilized post-monsoon satellite imageries since it is ideal for mapping water fl ow regimes. Images

from two different time frames, before onset of project and after completion of the project, were

analyzed for each of the case study projects to identify and map the impacts of the project on the

surrounding ecology. A region of 10 km around each hydro power plant was delimited for the map-

ping. The main classifi cation categories for the mapping include agriculture, open forests, moderate

dense forests, dense forests, rivers, open area, and built-up areas.

The land-use change maps for Punatsangchhu I, Punatsangchhu II and Mangdechhu did not de-

lineate signifi cant information as construction work for these projects are ongoing and the projects

have not been commissioned yet. The only major changes that can be observed include a signifi -

cant addition of built-up area around the river course and at the HEP sites.

The most signifi cant aspect observed in this exercise was the near total loss of water in the river

course downstream of Chhukha and Tala HEPs. Run-of-the-river (RoR) hydropower schemes func-

tion by diverting a substantial portion of the river into tunnels, built through adjacent mountains,

which fl ow at great speed for a signifi cant distance and eventually hit turbines to generate energy.

The headrace tunnel, located adjacent to the dam, is the intake channel and the tailrace tunnel,

located downstream of the dam, fl ushes water back into the river.

In the case of the River Wangchhu, the land-use change map reveals that a 10 km stretch from the

Chhukha headrace tunnel and another 25 km stretch from the Tala headrace tunnel are practically

dry with very limited water fl ow. The fact that the Tala headrace tunnel is within a 2.4 km distance

from the Chhukha tailrace tunnel additionally means that the two projects together affect an entire

stretch of almost 35 km of the River Wangchhu. This can severely affect the riverine ecology of River

Wangchhu and have irrevocable implications for ground water aquifers and ground water recharge

in the region.

The Kurichhu HEP being a reservoir scheme, without diversion of river course through tunnels, does

not have the same impact on River Kurichhu as Chhukha and Tala HEPs have on River Wangchhu.

Impacts of the Punatsangchhu I, Punatsangchhu II and Mangdechhu HEPs on the river ecology will

reveal itself only after the project begins to function.

In addition, there are no basin wide studies to assess the cumulative impacts of the hydropower

projects in the same river basin, and to determine the need for environmental fl ows to ensure the

ecological integrity of river basins. The environmental legislations in Bhutan mandates Cumulative

Environmental Impact Assessments (CEIAs) for projects planned on the same river course and basin.

However, so far Bhutan has not conducted even a single CEIA.

According to an August 2010 evaluation of the energy sector in Bhutan by the ADB, “the National

Environment Commission (NEC), which has been tasked with the responsibility of monitoring and

enforcing mitigating measures for the adverse environment impacts of large hydropower projects,

lacks the institutional capacity to discharge its responsibilities effectively given the scale of proposed

hydropower development in Bhutan.”

The nascent Department of Disaster Management in Bhutan, setup in 2008, functions as the na-

tional coordination unit for disaster management work but holds little technical expertise of its own.

The department works towards raising awareness on risks and preparedness, building local capaci-

ties to develop disaster management and contingency plans. The department has no specifi c focus

on hydropower and there is no compulsion that project authorities of hydropower projects involve

the Disaster Management Department for drawing up Disaster Management & Contingency plans.

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The National Disaster Management Authority was set up in 2014 to approve disaster management

plans of projects; however this Authority has not begun functioning to its full capacity. At present,

there is very little coordination between the NEC, DGPC, Department of Hydrology, and Department

of Disaster Management while planning and implementing hydropower projects.

Bhutan faces severe geological risks of earthquakes and Glacial Lake Outburst Floods (GLOF) due

to its location in extremely challenging terrain in the mountainous Himalayan region. Unfavorable

monsoon conditions also possess high risk of landslides that are amplifi ed during project construc-

tion due to loose soil structure and high possibility of soil erosion. The Chhukha, Tala, Kurichhu,

Punatsangchhu I and Punatsangchhu II HEPs are located in areas identifi ed as high and very high

seismic risk zones. The Punatsangchhu and Mangdechhu river basins possess highest risk of GLOF

in Bhutan, as they hold huge ice reserves and massive and potentially dangerous glacial lakes. Of

the 24 potentially dangerous glacial lakes, 13 are in the Punatsangchhu basin. The Kurichhu river

basin is moderately exposed to GLOF.

5.4 Implications to Communities

Information regarding the social impacts of projects is nearly nonexistent for the two executed proj-

ects – Chhukha HEP and Kurichhu HEP. While this information is available for Tala, Punatsangchhu

I, Punatsangchhu II and Mangdechhu, researchers of this study did not have access to the relevant

documents. Therefore, rudimentary information such as the exact number and names of villages

affected by each of the projects, the number of households affected, the number of household who

lost wetlands and dry land, the number of households that lost homestead land continue to be

missing links. Information relating to ground realities presented in this section is based on Focus

Groups Discussions (FGD)89 conducted in July and September 2015.

The schedules of their focus group discussions is as below:

89 Refer methodology for more details on the focus group discussions conducted. Each focused group discussions had roughly 25 people specifi cally represen ng all the villages in each of the project loca ons, in addi on to local government and elected representa ves. Further, we also had mee ngs at various pit stops stuch as tonw centres, market places and com-munity halls.

Focus Group Discussions(Conducting discussions with Project Affected Population (PAP) to understand ground realities

and community participation in any decision making process)

Tala (19th and 20th July 2015)People from affected villages of Tabji, Rinchhentse, Dangreyboog, Gengu, Khamaedthapang, Nimgang, Tashilakha, Bongo and Tsimalakha

Mangdechhu (13th and 14th September 2015)People from affected villages of Kuenga-rabten, Eusa, Taktse, Samcholing Khatoe, Samcholing Lkhatay and Khamay

Kurichhu (11th and 12th September 2015)People from affected villages within Saling, Drepong and Mongar Gewogs in Mongar district

Punatsangchhu I &Punatsangchhu II (20th and 21st July 2015)People from affected villages in Chiwogs of Gasetsho Gom, Gasetsho Wom, Thedtsho, Daga (Dagar), Athang and Ruepisa in Wang-due Phodrang district

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The main source of livelihood in all the six case study areas is agriculture, fruit orchards and live-

stock rearing. The six projects have acquired dry lands, wetlands and orchards. Community repre-

sentatives from all the six case study areas stated that all villages are electrifi ed and have piped

drinking water supply through the Rural Water Supply Scheme (RWSS).

Table 8 Impacts of Punatsangchhu I, II & Mangdechhu on Land

Land Details PHP I HEP PHP II HEP Mangdechhu HEP

Total land acquired 757 acres 556 acres 803 acres

Forest land acquired 673 acres 479 acres 733 acres

Private land acquired 78 acres 32 acres (20 acres wetland)

70 acres

Project Aff ected families (PAF) likely to lose cul vated land

116 19 49

PAF likely to lose both land and homestead 23 1 10

Source: Compiled by Vasudha Foundation

Community representatives stated that government authorities held a consultative meeting with

the affected people to inform them of the upcoming hydropower project but did not seek their

consent for acquisition of their lands or for implementing the project in their locality. In a meeting

held in 1994 in Darla village (Chukha), the authorities shared information about the Tala HEP and

the benefi ts of electrifi cation and infrastructure it would bring to the region. Similarly, at the August

2013 meeting held by the district administration at the MHPA Colony, information regarding the

Mangdechhu HEP and the benefi ts it would bring to the region were discussed.

The Environment Impact Assessment (EIA) report for the Tala, Punatsangchhu I, Punatsangchhu II

and Mangdechhu HEPs were not made available to the affected communities by district and project

authorities. More importantly, the people from the project-affected areas asserted that the district

authorities did not seek their consent before acquiring their land for the hydropower projects. Also,

the district and project authorities did not discuss the potential adverse impacts of the large hydro-

power projects on the natural environment and people during the consultative meetings.

Private Land for developmental projects including hydropower is acquired under the Land Act of

2007 by RGoB and leased to the projects’ developers. As per the Act, when private land is acquired,

landholders are given a choice between monetary compensation and replacement land in return

for the land acquired from them. The norms specify that wherever possible replacement land be as

close to the original land as possible and allows people to identify land for themselves and ap-

proach the local government for granting ownership rights. In the event that people are unable to

identify replacement lands in their own village or neighbouring villages, the district authorities facili-

tate identifi cation of land. Land replacement however is only granted if the landowner loses more

than 10 decimals of land. For acquisition of land of less than 10 decimals, monetary compensation

is the only option for those losing land. Given the scarcity of cultivable agricultural lands, wetlands

in particular, all lands are compensated with dry land. Also, the replacement lands are predomi-

nantly on hilltops that are water scarce and unfertile, making new tilling of land strenuous and

time-consuming. Many villagers narrated that their families had to work on the new barren lands

for years before making them suitable for cultivation with healthy crop yields.

In the case of hydropower projects, land is required for a variety of reasons such as construction of

dam, tunnel, reservoir, powerhouse, offi ce buildings, housing colonies, transmission lines, transmis-

sion tower and roads.

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Communities90 reported issues in the disbursement of compensation owing to faults with land

records and families lacking awareness of procedures to receive compensation. The Land Act also

provides for monetary compensation to landowners for periods of crop loss. Communities affected

by the Tala, Punatsangchhu I, Punatsangchhu II and Mangdechhu HEPs have received compensa-

tion for crop loss. In the case of Punatsangchhu I, land was acquired in 2008, compensation was

provided in 2011 and replacement land was granted to the landowners in 2013. Families however

reported that they received crop compensation only for a period of 2 years. Likewise land losers

affected by projects currently under implementation stated that though their lands have been ac-

quired, provision of land replacement took longer than the number of years for which they received

crop compensation. For instance, villagers affected by the Mangdechhu HEP claimed that while they

lost crop production for a period of fi ve years, they were provided crop compensation for a period

of only one year.

The acquisition of lands for hydropower projects has also impacted land holdings of people. Fami-

lies with very small land holdings, of less than 10 decimals, have lost all the land they owned, as

they are not eligible for receiving replacement land under the Land Act 2007.

People in Tala, Punatsangchhu I, Punatsangchhu II and Mangdechhu HEP areas reported increasing

scarcity of water, drying up of source points, and drying up of streams. Some areas also reported

the drying up of surface sources such as ponds in the recent past. Spring waters are the most

important sources of water for domestic and irrigational use. Disruption of groundwater fl ows and

springs are known to occur during construction of tunnels for run-of-the-river (RoR) hydropower

projects. That spring waters are in fact drying up in Bhutan was acknowledged in the June 2012

Long Term Plan for Water Supply Infrastructures of the Ministry of Works & Human Settlement.

In 2013, a consultative meeting91 was organized by the Dzongdag (Governor) of Trongsa District

with representatives from affected villages and Mangdechhu Hydro Power Authority (MHPA) to

discuss the use of water by MHPA. The people had given a written representation to the district

authorities that expressed their refusal to share water with the project authorities, as “they did not

have enough for themselves to irrigate the paddy fi elds”. The letter also stated that MHPA had not

honored its earlier commitments. On assurances from the district authorities and the MHPA, people

agreed to share their water with MHPA. The MHPA promised to construct engineering structures

to harness water from three sources into a channel; construct “open box drain channel” along the

Trongsa-Gelephu highway as irrigation cum road drain channel and construct a water tank for

drinking purpose. However, the incessant plying of heavy vehicles on the road has already dam-

aged the newly built irrigation canal, which the authority has now promised to rebuild.

90 The sample size of the project aff ected communi es varied across project sites. At some sites we were able to interview groups of peopleand in some cases, only the administra ve head (known as the gup) at the village level was available for the interview represen ng the en re community. Refer methodologyfor more details on interviews and focus group discussions conducted.

91 The mee ng was organised on 23 March 2013 at the Kuenga Rapten Dzong Compoud with the public of Drakteng Gewog for water abstrac on by MHPA.

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Figure 11 Plying of Heavy Vehicles at the Mangdechhu Project Site

Construction activities for Mangdechhu I have also disrupted the government’s piped water supply

from the springs to the villages. On MHPA’s orders, Jaiprakash Associates, the civil contractor for the

project, laid new pipes for water supply. People reported that the low quality PVC pipes, which were

used for this purpose, routinely break at different points. Also, when the water supply is low, the

project authorities and/ or contractors cut off supply of water to the village so that the colony gets

water.

People from the Punatsangchhu I, Punatsangchhu II and Mangdechhu projects reported that blast-

ing during construction activity has impacted concrete houses. Communities around the Mang-

dechhu project also revealed that blasting had affected the Trongsa Dzong, the Trongsa Museum

and a guest house. MHPA has denied that the blasting was responsible for the impact on the public

buildings.

The Wangdi phodrang - Tsirang highway has been damaged by use of heavy vehicles for Punat-

sangchhu project activity. The Trongsa-Gelephu highway has been rendered almost impossible to

use owing to the plying of 12-18 wheeled trucks for construction work of Mangdechhu project. The

people reported that immediately after complaints are made, the situation improves marginally only

to revert to bad conditions in a short span. The people in these regions have been forced to use

damaged roads for the last 5 years.

Dust pollution, as a result of increased vehicular traffi c, blasting and construction activity, has given

rise to respiratory disorders in children. Excavation activities during the construction of dam and

tunnels generate huge quantities of muck and debris. Communities living around the Mangdechhu

project has raised this issue through written and oral representations with the district and project

authorities. MHPA promised to ensure regular sprinkling of water along the main roads and not just

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within the project sites. People however reported that the sprinkling of water was neither suffi cient

nor consistent to curtail dust pollution.

MHPA’s temporary labor colony is located in Samcholing Khamay village in Drakteng Gewog. Low

quality PVC pipes used for carrying sewage have broken open several times in the past. Villagers

reported that sewage water from the toilets in the colonies seep into water sources and pollute the

water. Apart from polluting water sources and creating unhygienic environment, there has been a

tremendous rise in mosquitoes in the area.

There are no formal procedures for addressing grievances arising from HEPs. People raise issues

with the Gewog administration, who then raise it with the Managing Director (MD) or Joint

Managing Director (JMD) of Project Authorities, who in turn raise the grievances with the concerned

contractors. Experiences of communities who have raised their concerns with the PHPA and MHPA

reveal that, while project authorities assure to intensify safeguard measures such as sprinkling of

water to reduce dust pollution or ensure that water supply to villages is not cut off by contractors,

the outcomes are not long lasting.

Bhutan does not have a policy to govern the resettlement and rehabilitation of communities

affected by developmental projects. The Sustainable Hydropower Policy of 2008 mandates

project authorities to set aside a minimum of 1 per cent of the project cost for resettlement

& rehabilitation of affected families and for local development. As per the Act, the RGoB will

implement the resettlement, rehabilitation and Local Development Plan in consultation with the

Local Development Committee. A May 2014 Review of the Sustainable Hydropower Development

Policy by the National Council of Bhutan alleged that the said funds have been used without proper

guidelines and transparency.

Hydropower projects in Bhutan have not generated employment for the local communities.

Completed projects such as the Chhukha, Kurichhu and Tala HEPs have 510, 201 and 688

employees at present. While nearly 95 per cent of the workforce comprises Bhutanese citizens,

less than 5 per cent comprises of people affected by the projects. Where they are employed, it is

for unskilled civil work. The construction phase of hydropower projects generates up to 10,000

jobs. The cases of the three HEPs under construction – Punatsangchhu I, Punatsangchhu II and

Mangdechhu, reveal that workers employed for construction activities are predominantly brought

in from India and lodged in local labor colonies. A few local individuals have benefi tted from small

sub-contracted businesses such as supply of material and civil work. According to a July 2015

release on India-Bhutan relations appearing on the website of Embassy of India in Bhutan, “there

are about 60,000 Indian nationals living in Bhutan, employed mostly in the hydro-electric power

and construction industry. In addition, between 8000 and 10,000 daily workers enter and exit

Bhutan everyday in border towns.” The rate of unemployment in Bhutan has increased from 2.10

per cent in 2013 to 2.90 per cent in 2014.

In many of the hydropower project areas, local people constructed housing on a large scale in the

hope of renting them out to the project. However, once the contractors settled into the local area,

they proceeded to construct houses of their own, rendering all the new houses constructed by the

people vacant and useless. Poor assessment of social impacts and improper planning has led to the

creation of ghost towns92 in HEP areas. Gedu and Tsimalakha in the Tala and Chhukha HEP are two

such ghost towns.

An important benefi t from hydropower development to households losing land is the provision

of 10,000 units of free electricity per annum per acre of land lost. According to the Sustainable

92 Ghost town is a town that comes up to cater to large infl uxes of people in the process of developing mega projects but is not used a er the project is wrapped up.

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Hydropower Policy of 2008, the household can choose to avail the free electricity or cash in lieu

thereof at the export rate from the project.

The Project Authorities of all the six case study projects have constructed basic infrastructure such

as roads, health facilities and schools or have advanced money to the district authorities for their

construction.

The infl ux of labor into the region has also has enabled small local markets and businesses to

sprout. For instance, the Kurichhu workers colony is a ready market for small supplies such as

cheese, butter, eggs and vegetables. Most families grow vegetables in a small portion of their

land and the variety of vegetables cultivated in the area has diversifi ed. From cultivating only

local species such as pumpkin, beans, spinach and radish, the local markets today display a larger

variety including caulifl ower and broccoli. The selling of supplies in the local markets has added

supplementary income thereby improving the economic conditions of local families. Communities

affected by the Punatsangchhu HEPs however, criticized the PHPA for not permitting them to

sell their produce inside the colony premises. It is important however to note that this economic

improvement is only marginal and has not gone on to improve further. A decade and a half after

the completion of the Kurichhu HEP, the local communities are still selling vegetables in the local

markets. Not even the younger generation of people in the region has been trained to take up

skilled work in the project or elsewhere.

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SECTION SIX

6.1 Conclusion and Recommendations

The Royal Government of Bhutan’s decision to exploit the country’s water resources for production

of electricity and simultaneously boost the service industry has changed the economic scenario for

Bhutan. Bhutan kick started economic development with the infl ux of Rs. 300 million generated

from the Chhukha Hydro Electric Project that was commissioned in 1988. India, who has had bilat-

eral relations with Bhutan since 1949 and an energy cooperation agreement since 2006, has been

a key contributor to the development of Bhutan’s hydropower sector. The Chhukha Hydro Electric

Project was touted as an excellent example of bilateral cooperation between the two countries

where both parties made economic gains. The hydropower sector grew and hauled the country’s

national economy up through the 2000s.

Hydropower projects implemented in Bhutan are largely an outcome of political processes founded

on economic rationale with commitment from the heads of the two governments; the many partic-

ulars of which are veiled behind diplomatic relations and bilateral agreements. This study fi nds that

the India-Bhutan energy cooperation agreements impede transparency and consequently restrains

a critical analysis of the same. The guise of diplomatic sensitivity must not harbor critical informa-

tion, managerial faults and corrupt practices. This study recommends that the bilateral agreements become

more accountable and ensure dissemination of basic information to the citizens of both countries.

Analysis of implemented and under construction projects reveals that the control of management

in project authorities is skewed in the favor of India. Indian citizens occupy a disproportionate

percentage of decision-making roles within project authorities and all major contracts for work are

awarded to Indian agencies. The study fi nds that at least some of the delays and cost over runs in

the Punatsangchhu I project are due to erroneous decisions of the project authority and its Indian

consultants. Nonetheless, it is Bhutan that will bear any losses resulting from the debacle. Therefore,

the two governments must review the agreements to ensure that Bhutan shares equal or greater responsibility in the

project authorities constituted for the implementation of specifi c projects.

A matter for concern is that Bhutan has not developed expertise and resources of its own to devel-

op hydropower projects. One of the contributing factors to this is that the private sector in Bhutan

has not been given equal opportunity to participate in the sector and the Indian private sector has

reaped much of the benefi ts.

The hydropower sector has not contributed to building local economies as it has contributed to the

national economy of Bhutan. This study fi nds that benefi ts to local communities are largely in the

realm of social development in the form of additional schools, health facilities, roads and such. Local

businesses have gained only marginally and are more an offshoot of hydropower projects rather

than as planned benefi ts from development. With the exception of the 10,000 units of free electric-

ity provided to affected families by the Government of Bhutan, the benefi ts to local communities

are minimal. Very few of the local people are given employment during the construction phase of

hydropower projects as Indian contractors bring in thousands of workers from India. The sharing

of benefi ts within the framework of the energy cooperation agreements is skewed in the favor of India. The Royal

Government of Bhutan and Government of India must make earnest efforts to ensure that all benefi ts are shared

between the two countries.

The study fi nds that consent for acquiring lands from project-affected people was not sought,

thereby violating the internationally recognized principle of Free, Prior and Informed Consent. The

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people were also not consulted in drafting the resettlement and rehabilitation plans. The project-

affected families were merely informed about the upcoming hydropower project, the resettlement

and compensation plans drawn up for them and the probable benefi ts from the new economic

activity. The Royal Government of Bhutan must ensure that free, prior, and informed consent of people is sought

before proceeding with acquisition of lands for developmental activity.

Currently, the development of hydropower projects in Bhutan lies outside the realm of its Five Year

plans and funds for hydropower projects from India are disbursed directly to project authorities in

Bhutan bypassing the national budget. Financing of hydropower projects are not reported in annual

budget documents. Neither are audits of hydropower projects a part of the Annual Audit Reports

presented before the Parliament. Therefore, there are limited discussions on the matter within the

parliament and the few discussions that take place are limited to tariff revision. Bhutan must imme-

diately make the necessary reforms to ensure that hydropower development is part of its national planning, budget

and overall development. The Royal Audit Authority of Bhutan must also periodically audit the projects.

Based on the year of commissioning of the already completed hydropower projects of Chhukha,

Kurichhu, Basochhu, Tala and Dagachhu it is quite evident that they were spaced out in time. The

Chhukhha HEP began in 1974 and completed in 1988, Kurichhu HEP began in 1995 and completed

in 2002, Tala HEP began in 1996 and completed in 2007, Basochhu HEPs started in 1996 and com-

pleted in 2005, Dagachhu HEP started in 2009 and completed in 2015. However, the 2006 Umbrella

Agreement identifi ed 10 projects for completion before 2020 and as a consequence the Govern-

ment of Bhutan has initiated a project almost every 2 years. The Punatsangchhu I HEP began in

2008, Punatsangchhu II HEP began in 2010, Mangdechhu HEP began in 2012 and Kholongchhu

HEP began in 2015. During the same period, hydropower projects under construction have faced

several challenges, delays in keeping up with schedule and massive cost escalations. The net profi t

per unit of electricity sold has fallen sharply since 2007, the sector’s regular contribution to the

national budget has declined, the project cost for Punatsangchhu I nearly tripled from Rs. 3400 Cr

to Rs. 9700 Cr and Bhutan’s national debt has risen to 118 per cent of the country’s GDP. The Royal

Government of Bhutan must critically appraise the overall contribution of the hydropower sector to the economy,

evaluate the progress of projects under construction, review existing loans from the sector and assess viability of

electricity from projects such as Punatsangchhu I before proceeding to approve new projects.

While Bhutan has signifi cantly developed the hydropower sector, growth in other industries has

been peripheral. The Eleventh Plan document of the Bhutan Government noted that, “lack of

economic diversifi cation has resulted in a situation of high growth rates driven by the hydropower

sector without a commensurate increase in gainful employment for a rapidly growing and educated

labor force, which poses signifi cant macroeconomic challenges”. The Royal Government of Bhutan must

plan for diversifi cation of sectors and design fall back options.

Unless a cost benefi t analysis of the natural environment lost to hydropower development is carried

out in the country, concluding that hydropower development has largely been benefi cial to Bhutan

is premature. Addressing environmental and social issues associated with large-scale hydropower

development will be a major challenge for Bhutan in the coming years. Given the lack of access to

critical information such as EIA reports, it is not possible to determine if projects have been follow-

ing environmental norms and to what extent they are successful in doing so. Preliminary informa-

tion indicates that the environment is taking a backseat in all the new development. Approval of

hydropower projects from both governments before assessing projects for environmental impacts is

an important factor contributing to adverse environmental consequences. Overall assessment of projects

must be made mandatory, and the assessment reports must be made public, before the two governments approve

hydropower projects.

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Evidence gathered in this study indicates that the EIA reports for hydropower project do not suf-

fi ciently and correctly assess projects for impacts. This study fi nds that impacts from projects include

loss of forest lands, disturbance to wildlife habitat, noise pollution due to blasting and tunneling

activities, impacts on fi sh breeding and migration, extreme dust pollution leading to respiratory dis-

orders, lower crop productivity and pollution of water sources, damage to open water bodies such

as streams and ponds causing severe stress on water resources in the region. The study recommends

strengthening of environmental regulations and regulatory authorities such as the National Environment Commis-

sion for effective enforcement of environmental regulations. To ensure robust assessment of impacts and effective

mitigation plans, the government of Bhutan must consider bringing in third party vetting of Detailed Projects Reports

(DPR) and Environment Impact Assessment (EIA) reports prepared by consultants.

The environmental fl ow maintained in rivers by project authorities is alarmingly inadequate. The

Chhukha and Tala hydropower projects have rendered an entire stretch of 35 km on River Wangch-

hu nearly dry with limited or no fl ow of water. Hampering the natural fl ow of rivers to this extent

could irrevocably damage the riverine ecosystems. Bhutan does not have a scientifi c system to de-

termine environmental fl ows in hydropower projects. The November 2014 water regulation requires

the EIA reports of projects to recommend the environmental fl ows and prescribes a default mini-

mum of 30 per cent of lean season fl ow. The regulation however provides no guidance and criteria

for working out environmental fl ows. Furthermore, it is worrying that basin wide studies have not

been conducted to assess the cumulative impacts of projects. The National Environment Commission of

Bhutan needs to arrive at a scientifi c method for determining environmental fl ows in rivers for hydropower projects

and alongside conduct cumulative assessment of projects before granting clearances to new projects.

With the exception of hydropower project areas, Bhutan has protected its environment through

stringent regulations and has an eco-system that is the envy of any country. Before embarking on

any further development, the Royal Government of Bhutan must design proper systems to identify

and account for loss of ecology, natural environment and local economy with regard to existing

hydropower projects.

45

Policy Recommendations

The bilateral agreements between both the governments must become accountable and

ensure dissemination of basic information to the citizens of both countries.

The Royal Government of Bhutan and Government of India must review the agreements to

ensure that Bhutan shares equal or greater responsibility in project authorities constituted for

implementation of specifi c projects.

The Royal Government of Bhutan must make efforts to develop local expertise so as to facili-

tate greater Bhutanese participation into the hydropower development process.

The Royal Government of Bhutan and Government of India must make earnest efforts to

ensure that all benefi ts are shared between the two countries.

The Royal Government of Bhutan must ensure that free, prior, and informed consent of people

is sought before proceeding with land acquisition for developmental activity.

The Royal Government of Bhutan must make the necessary reforms to ensure that hydro-

power development is part of national planning, budget and overall development. The Royal

Audit Authority of Bhutan must periodically audit projects.

The Royal Government of Bhutan must critically appraise the overall contribution of the hy-

dropower sector to the economy, evaluate the progress of projects under construction, review

existing loans from the sector and assess viability of electricity from projects such as Punat-

sangchhu I before proceeding to approve new projects.

The Royal Government of Bhutan must plan for diversifi cation of sectors and design fall back

options.

Overall assessment of projects must be made mandatory, and the assessment reports must be

made public, before the two governments approve hydropower projects.

The study recommends strengthening of environmental regulations and regulatory authori-

ties such as the National Environment Commission for effective enforcement of environmen-

tal regulations. To ensure robust assessment of impacts and effective mitigation plans, the

government of Bhutan must consider bringing in third party vetting of DPR and EIA reports

prepared by consultants.

The National Environment Commission of Bhutan needs to arrive at a scientifi c method for

determining environmental fl ows in rivers for hydropower projects and alongside conduct

cumulative assessment of projects before granting clearances to new projects.

46

A S

tud

y of

the

Ind

ia-B

huta

n E

ner

gy

Coop

erat

ion A

gre

emen

ts a

nd

the

Imp

lem

enta

tion o

f H

ydro

pow

er P

roje

cts

in B

huta

n

47

Annexures

48

A S

tud

y of

the

Ind

ia-B

huta

n E

ner

gy

Coop

erat

ion A

gre

emen

ts a

nd

the

Imp

lem

enta

tion o

f H

ydro

pow

er P

roje

cts

in B

huta

n

AN

NEX

UR

E 1

- Li

st o

f Hyd

ropo

wer

Pro

ject

s (U

nder

Con

stru

ctio

n an

d th

ose)

Pla

nned

by

2020

S N

oPr

ojec

tRi

ver /

Riv

er

Basin

Capa

city

(M

W)

Type

of

Proj

ect

Year

of

Com

mis-

sioni

ng

Dist

rict

Proj

ect S

tatu

sIn

dia-

Bhut

an

Agre

emen

t Pr

ojec

t M

odel

Impl

emen

ng

/ O

pera

ng

Agen

cy

Proj

ect

Cost

(in

Rs. C

r)

Fund

ing

Agen

cy

1.

Puna

tsan

gchh

u I

Sunk

osh

1200

RoR

2015

Wan

gdue

Ph

odra

ng20

20; U

nder

co

nstr

uc o

nYe

s; 2

006

IGPH

PA I

9,39

6 Go

I

2.

Man

gdec

hhu

Man

as72

0Ro

R20

17Tr

ongs

a20

20; U

nder

co

nstr

uc o

nYe

s; 2

007

IGM

HPA

4,50

0Go

I

3.Pu

nats

angc

hhu

II Su

nkos

h10

20Ro

R20

17W

angd

ue

Phod

rang

2020

; Und

er

cons

truc

on

Yes;

201

0IG

PHPA

II7,

435

GoI

4.

Nik

achh

uM

anas

120

RoR

2020

Tron

gsa

2020

; Und

er

plan

ning

No

PPP

DGPC

1,5

96

ADB

5.

Buna

kha

Wan

gchh

u18

0RS

2020

Chhu

kha

2020

; Und

er

plan

ning

Yes;

201

4JV

JV -

THDC

& D

GPC

2,9

50JV

par

tner

s &

othe

rs

6.

Sunk

osh

Rese

rvoi

r Su

nkos

h25

60RS

2020

Daga

na20

20; U

nder

pl

anni

ngYe

sIG

NA

9,70

0 Go

I

7.Ch

amka

rchh

u I

Man

as77

0Ro

R20

18Zh

emga

ng20

30; U

nder

pl

anni

ngYe

s; 2

014

JVJV

- DG

PC &

N

HPC

NA

JV p

artn

ers &

ot

hers

8.Ku

ri - G

ongr

iM

anas

2640

RS20

20M

onga

r20

20; U

nder

pl

anni

ngYe

sIG

NA

20,0

00

GoI

9.

Khol

ongc

hhu

Man

as60

0Ro

R20

20Tr

ashi

Yan

gtse

2020

; Und

er

plan

ning

Yes;

201

4JV

JV -

DGPC

& S

JVN

4,

076

JV p

artn

ers &

ot

hers

10.

Wan

gchh

uW

angc

hhu

570

RoR

2019

Chhu

kha

2020

; Und

er

plan

ning

Yes;

201

4JV

JV -

DGPC

& S

JVN

6,45

2 Go

I

11.

Amoc

hhu

Tors

a54

0RS

2018

Sam

ste

2020

; Und

er

plan

ning

Yes

IGN

AN

AN

A

12.

Khom

achh

uM

anas

336

RoR

2017

Lhue

ntse

2030

; Und

er

plan

ning

No

PPP

DGPC

3,07

3N

A

13.

Rotp

asho

ng(K

uri I

) M

anas

1230

RoR

2019

Mon

gar

2030

; Und

er

plan

ning

No

PPP

DGPC

10,9

43N

A

14Bi

nduK

hola

Jald

haka

13Ro

R20

20Sa

mst

e20

20; U

nder

pl

anni

ngN

AN

ADG

PCN

AN

A

15.

Sunk

osh

LBSu

nkos

h35

RoR

2020

Daga

na20

20; U

nder

pl

anni

ngYe

sIG

NA

NA

NA

Sour

ce: C

ompi

led

by V

asud

ha F

ound

atio

n

49

ANNEXURE 2 - List of Hydropower Projects Planned by 2030

S No Project Capacity (MW)

District S No Project Capacity (MW)

District

1. Dagachhu II 135 Dagana 30. Punatsangchhu III 595 Tsirang

2. Dangchhu I 150 Wangdue Phodrang

31. Kholong 94 Trashi Yangtse

3. Dangchhu II 78 Wangdue Phodrang

32. Thampochhu 95 Wangdue Phodrang

4. Amochhu I 747 Haa 33. Thimphuchhu 57 Thimphu

5. Amochhu II 500 Samste 34. Cherichhu 76 Thimphu

6. Chamkarchhu 97 Bumthang 35. Krissa 32 Trongsa

7. Chamkarchhu II 992 Bumthang 36. Wachi 24 Trongsa

8. Chamkarchhu III 1890 Zhemgang 37. Rimjigang 46 Trongsa

9. Chamkarchhu V 162 Zhemgang 38. Shorgarchhu 27 Trongsa

10 NyeraAmari I 142 Trashigang 39. Aiechhu (L) 64 Sarpang

11. NyeraAmari II 330 Samdrup 40. Aiechhu (S) 22 Sarpang

12. Samchhu 71 Samste 41. Gumthang 108 Bumthang

13. Pachhu 77 Samste 42. Shongarchhu 107 Mongar

14. Pochhu 132 Punakha 43. Ghijam/ Lirigang 53 Bumthang

15. Mochhu I 658 Gasa 44. Gobarichhu 53 Mongar

16. Mochhu II 403 Punakha 45. Burgang I 69 Zhemgang

17. Kheng 570 Zhemgang 46. Burgang II 70 Zhemgang

18. Sichhu 73 Punakha 47. Manas RS I 1800 Samdrup

19. Jaladhaka 19 Samste 48. Manas RS II 1000 Samdrup

20. Cherchhu 45 Haa 49. Bambichhu 22 Lhuentse

21. Haachhu 17 Paro 50. Dhansiri 73 Samdrup

22. Dara I 79 Dagana 51. Nagargang 24 Mongar

23. Dara II 115 Dagana 52. Bomdeling/ Kholong 130 Trashi Yangtse

24. Dara III 153 Dagana 53. Cher 25 Tsirang

25. Dara IV 212 Tsirang 54. Sherichhu 36 Mongar

26 Parochhu 104 Paro 55. Gamrichhu I 64 Trashigang

27. Bemeng 14 Thimphu 56. Gamrichhu II 79 Trashigang

28. Piping 55 Chhukhha 57. Gamrichhu III 80 Trashigang

29. Sama 16 Dagana 58. Gamrichhu IV 91 Trashigang

Source: Compiled by Vasudha Foundation

50

A S

tud

y of

the

Ind

ia-B

huta

n E

ner

gy

Coop

erat

ion A

gre

emen

ts a

nd

the

Imp

lem

enta

tion o

f H

ydro

pow

er P

roje

cts

in B

huta

n

51

52

A S

tud

y of

the

Ind

ia-B

huta

n E

ner

gy

Coop

erat

ion A

gre

emen

ts a

nd

the

Imp

lem

enta

tion o

f H

ydro

pow

er P

roje

cts

in B

huta

n